Health Policy Report

November 30, 2015

The Week in Review 

The House and Senate were on recess last week in observance of the Thanksgiving holiday. Both chambers are scheduled to return to Washington tomorrow. 

The Week Ahead

When Congress returns, it will need to negotiate an agreement on a $1.1 trillion omnibus spending provision before government funding expires on December 11. While topline numbers were settled in a deal between Republican leaders and the White House in October, the government will still shutdown if Congress cannot agree to a specific allocation measure. The spending itself is less contentious than possible policy riders, as Republicans are considering using the must-pass measure to target the President’s plans to resettle Syrian refugees in the United States and close the Guantanamo Bay detention facility. If the disagreements prove intractable, there remains a possibility that negotiators may draft a combination of agreed-to spending bills alongside a continuing resolution to fund the rest of the government. 

Congress also faces another highway funding deadline when it returns, with the most recent authorization patch set to expire on December 4. Negotiations on the issue have dragged on for months, but House Transportation and Infrastructure Committee Chairman Bill Shuster (R-PA) has said that conferees will file a conference report at some point today. The House and Senate will likely confirm the report in short order, clearing the way for the President to sign the first long-term highway deal since 2012.

Finally, this week the Senate may also prepare its changes to House-passed budget reconciliation legislation (H.R. 3762) that would repeal key sections of the Affordable Care Act (ACA), including the individual mandate and both the medical device and ‘Cadillac’ excise taxes. The changes are a response to Senate parliamentarian Elizabeth MacDonough’s ruling earlier this month that the House version did not follow Senate rules regarding reconciliation bills, which avoid the 60-vote filibuster threshold typically required of major legislation. 

Pfizer and Allergan Merger Ignites Calls for Congressional Crackdown

Last Monday, pharmaceutical giants Pfizer and Allergan announced a record-breaking $160 billion merger, prompting calls from both chambers of Congress to crack down on so-called inversion – when companies evade US corporate taxes by reincorporating overseas. Although Allergan, headquartered in Ireland, is the smaller of the two companies, it plans to purchase Pfizer, allowing the American drug maker to transfer its headquarters to Ireland, where corporate taxes are substantially lower. The pending merger of the companies would be the largest corporate inversion in health-care industry history, and is sure to receive scrutiny from US and European regulators alike.

Presidential candidates on both sides—including front-runners Donald Trump and Hillary Clinton—were quick to take a stance against the deal, urging the Obama administration to use its regulatory authority to stop the merger. Clinton added that she would soon be rolling out specific plans to prevent inversions and close other loopholes in the tax code so that firms cannot “game the international tax system.” With the end of the year fast approaching, it is unlikely that Congress will address the tax issue, other than acting on a possible renewal of expired tax provisions in a “tax extenders” package. And while there has been some bipartisan support of adjusting the tax code to deal with inversions, a former tax aide said a change would be unlikely to pass Congress before the 2016 general elections. 

Tax Extenders’ Fate Remains Unclear; ‘Cadillac Tax’ Repeal Possible

The recurring fight over extending specialty tax breaks, or tax extenders, traditionally avoids controversy as both parties compromise to protect causes that are important to their respective bases. However, this year is set up to be more challenging than most, with House Republicans demanding permanent tax break extensions for businesses’ research and development costs and Democrats seeking to renew and expand the earned income tax credit and the child care tax credit – both of which are due to expire in 2017. As an indicator of the many routes that an extenders package could take, the Senate and House have passed differing measures addressing the issue, with the House passing a number of permanent extensions and the Senate Finance Committee advancing a two-year, $96 billion extension. This divergence leaves lawmakers with two options: punt the issue into 2016 by passing an all-inclusive short-term patch or try to negotiate a broader deal that would make some breaks permanent and that could include contentious policy riders.

Should Congress choose the latter, the tax extenders package may become a legislative vehicle for a number of policy changes that have yet to make it to the president’s desk. Possible provisions include tweaks to the ACA, with Sen. Dean Heller (R-NV) touting a repeal of the so-called Cadillac tax on high cost insurance plans. A repeal of the tax has gained bipartisan support, but has thus far been unable to gain any traction in the Senate as a stand-alone measure. The chairman of the Republican Conference, Sen. John Thune (R-SD), has said that it is “unclear” whether both parties can agree on permanent measures, and he is expecting fierce opposition to language changes to the ACA.

Senators Urge HHS to Allow Canadian Imports

As the controversy over rising prescription drug prices continues to grow, Sens. Chuck Grassley (R-IA) and John McCain (R-AZ) have begun pressing the Obama administration to expand the importation of medicines from Canada. In a letter sent to Department of Health and Human Services (HHS) Secretary Sylvia Mathews Burwell, the two Republican senators requested that pharmacists, wholesale retailers, and individuals be allowed to import cheaper Canadian versions of select drugs under certain circumstances. Those circumstances include: if the drug is off-patent or no longer marketed in the United States by the innovator company that developed the drug; if there is a significant increase in US prices; if no direct competitor drug is currently on the market and the introduction of a competitor would result in lower prices; and when the drug is produced in another country by either the original manufacturer of the product, or by a well-known generic manufacturer, that commonly does business in the United States.

Currently, the Food and Drug Administration (FDA) is permitted to issue waivers to import pharmaceuticals for personal use, but is otherwise prohibited from allowing importation until HHS certifies that such a move would lower consumer costs and not present a health risk. Allowing for importation would likely prevent pharmaceutical companies from driving up the prices of incumbent generics in the same fashion as Turing and Valeant, who both produced headlines when they dramatically increased the price of drugs that had been in the market for decades with few competitors.

President Obama has been questioned by many on the issue after failing to include importation from developed countries like Canada in his signature health care law in 2010. McCain and Grassley’s statement also follows similar calls for importation from Democratic presidential candidates Bernie Sanders and Hillary Clinton in their proposals on drug pricing. 

HHS Targets Rising Drug Prices; PhRMA Argues for System-Wide Approach

In a recent HHS forum, the agency encouraged stake holders to “share information and discuss ideas” on addressing prescription drug costs while maintaining an innovative marketplace – a clear signal that the agency wants to help curb soaring prescription drug prices. While officials did not lay out a timetable or say what steps the administration plans to take, there was a general consensus that the issue could be addressed through regulation or legislation. Solutions discussed during the forum include allowing the government to negotiate directly with pharmaceutical companies on behalf of Medicare, requiring greater transparency about how drug makers set their prices, and shifting towards value-based health plans that reward efficiency.

In his remarks for the forum, Acting Administrator of the Centers for the Medicare and Medicaid Services (CMS) Andy Slavitt pointed to generic price hikes as a problem in need of a solution. While the CMS official was careful to mention the benefit of innovation, he also criticized cases of substantial price increases on generic drugs without any additional health benefits for patients. Moreover, he said that CMS has spent $140 billion on prescription drugs and that spending on medicines increased 13 percent in 2014, while overall health spending only grew 5 percent.

Meanwhile, the industry association Pharmaceutical Research and Manufacturers of America (PhRMA) responded to the event by saying that conversations on cost need “to look at spending across the health care system to find solutions that ensure access to high quality, patient-centered care, and continue to encourage development of innovative, life-changing medicines.” The group also said that stakeholders should be aware that increasingly high cost sharing and restrictions on access are creating barriers for patients, and that hospitals rather than prescription drugs are the primary driver of insurance premium increases.