The Honorable Rick Scott, Chairman
The Honorable Kirsten Gillibrand, Ranking Member
Special Committee on Aging
United States Senate
G16 Dirksen Senate Office Building
Washington, DC 20510
Dear Chair Scott, Ranking Member Gillibrand, and Members of the Committee:
On behalf of National Taxpayers Union (NTU), America’s oldest national-level taxpayer advocacy organization, I write to offer comments for the record regarding the Committee’s hearing today entitled “Bad Medicine: Closing Loopholes that Kill American Patients.” Having reviewed the proceedings of a previous September Committee hearing, “Prescription for Trouble: Drug Safety, Supply Chains, and the Risk to Aging Americans,” NTU humbly believes that the taxpayers’ perspective might prove useful in Congress’s deliberations going forward.
Introduction
For most of NTU’s 55-year history, our team has analyzed and provided commentary on important questions surrounding the fiscal impact of federal legislation and regulations on the health space. We have noted with great concern the decades-long cost spiral in federal health care programs, which has seemed to defy attempts at reducing or at least controlling the burden on current and future taxpayers.1
To NTU, it is evident that innovative approaches to reducing health care costs must continue to be explored and implemented, to reorient this unsustainable trajectory toward a more realistic and affordable direction. We believe that thoughtful deployment of prescription drugs (both branded and generic/biosimilar) in more settings, as longer-term alternatives to costlier treatments, can be a vital part of this necessary exercise.2 For this reason, we believe the Committee should carefully deliberate the impact of public sector policies—not just private sector processes—on drug safety and patients’ well-being. Accordingly, we offer the following observations.
Comments
Counterfeit medicines can and do enter the United States; government policies intended to “do something” about prices, such as drug importation and tariffs, can actually contribute to the problem and cost taxpayers significantly.
For many years, NTU has warned that proposals to allow importation of prescription drugs from abroad carry fiscal—not just health—risks because of their potential to allow counterfeit medicines into the U.S. Seven states—ranging from Colorado to Vermont—have attempted to craft regimes relying on Canadian drug importation, with Florida’s program being the most prominent owing to the size of its market. The following perspective published last year from the firm of Ropes and Gray neatly summarizes the fiscal concerns today over importation policies at the federal and state levels:
[T]here is ample skepticism that drug importation programs will ever reach the size or scope to result in meaningful savings. Further, the supply chain may have other new costs on account of any importation program – including greater administrative costs in administering a state-based program and in addressing safety risks related to counterfeit or misbranded products, as well as compliance costs associated with new regulatory requirements. Further, and significantly, drug importation could lower manufacturer revenue or otherwise have a chilling effect on incentives to pursue research and development of new or improved versions of drugs. The Congressional Budget Office estimates that reductions in revenue to manufacturers as a result of the program would lead to cuts in research and development that would cause approximately eight fewer new drugs to be introduced to the U.S. market over the next 10 years and roughly 30 fewer drugs over the following decade.3
For many years, NTU has also warned that the complexities of ensuring patient safety from imported medications, particularly branded drugs, mean heavy costs to taxpayers. A 2018 letter from NTU to the Utah Legislature, which was considering importation at the time, provides a more detailed explanation:
Ensuring consumer safety likewise carries a considerable financial burden to government agencies, and therefore taxpayers. In 2004, a [U.S] Department of Health and Human Services report estimated that approximately 10 million packages entered the United States with imported prescription drug products; developing a federal regime to screen all these packages for safety would add up to nearly $3 billion—or approximately the total potential savings from an importation regime, according to the Congressional Budget Office (CBO). It would be a mistake to assume that some 15 years later, improvements in tracking, testing, and monitoring shipments have erased these costs. The significant outlays necessary to preserve the integrity of the pharmaceutical supply chain – especially due to the proliferation of counterfeit Internet pharmacies – could still easily overwhelm whatever price breaks drug importation could produce nationwide or in Utah. Policing transshipments that might be sent from Canada but actually manufactured elsewhere would remain difficult. Interestingly, not even the association representing U.S. pharmaceutical wholesalers, some of whose members would presumably benefit by the contracted portion of the proposed Utah program, has endorsed importation.
We would also note that the net impact of importation on consumers – and in the case of Utah’s Medicaid and state employee insurance programs, taxpayers – remains uncertain, despite being informed by other states’ generally negative experiences. Illinois, for example, terminated its importation program in 2008 after fewer than 4,000 residents availed themselves of the services. More recently, in December 2018, importation advocates hailed a report from Vermont’s Agency of Human Services (AHS) which claimed that a wholesale Canadian-oriented importation regime there could allow commercial insurers to “see savings of between $1-5 million dollars.” Yet, that same report also noted that administration of such a program “would likely come at substantial cost to the state, requiring upfront investment and appropriations.” . . . On the question of whether the benefits of a potential Vermont importation program would outweigh its costs, AHS demurred.4
We believe that, if the Committee is to honestly explore the question of risks to patients from ingredients and medications from abroad, it must first recognize federal and state governments’ role in promoting policies that add to the task of policing supply chains.
Private companies and taxpaying families already pay for government drug safety functions; are they getting the value they deserve?
The safety of prescription drugs should be a paramount concern not only to patients and policymakers, but to taxpayers as well. Aside from the human suffering that results from unsafe medicines, the financial toll of remediation for those affected can be heavy. Patient injuries in government-funded health care programs make heavier the burdens taxpayers must already bear for treatments, while the salutary effects of authentic medications in driving down expensive hospital stays, surgeries, and other treatments are diminished as patients are unable or unwilling to access them.
Here again, however, NTU believes that even as the Committee looks to the private sector for answers on patient safety of medications, it should be asking hard questions of the public sector as well. As a recent example, some controversy has arisen over the safety and efficacy of Anti-Obesity Medications (AOMs), with a focus on the practices of certain compounding pharmacies. According to an analysis of FDA and other data conducted by the Partnership for Safe Medicines (a business coalition) and the former Director of the Food and Drug Administration’s (FDA’s) Criminal Investigations Division, 2,465 bulk foreign shipments of semaglutide or tirzepatide entered the U.S. for inspection between September 2023 and January 2025. Of these, 239 came from entities that were not registered in advance with FDA, and from that number 195 “were allowed into the U.S. despite clear legal prohibitions.”5 How did this happen, despite industry- and taxpayer-funded government safety procedures? Committee members deserve answers.
We hasten to add that, under the User Fee Agreements that prescription drug, generic drug, medical device, and other businesses conclude with the FDA, the private sector effectively pays billions to the government to be regulated, accounting for up to half of FDA’s budget.6 The value the private sector receives from these payments is diminished when activities such as import inspections or inspections in facilities abroad that export to the U.S. fall by FDA’s wayside.
The Generic Drug User Fee Agreements (GDUFA) were first launched in 2012 after a highly consultative process, during which, not only patient and government concerns were heard, but also those from the industry itself. While U.S. generic companies sought more predictable and expedited pathways to product approval in exchange for paying fees, they also called for resources collected from them to be expended on more facility inspections, especially abroad. The current iteration of GDUFA agreements are so detailed as to provide for education of foreign regulators on how U.S. inspections of generic manufacturing and API production facilities outside the country would occur.7 The federal government has articulated its own specific benchmarks under GDUFA, and has regularly reported on them. NTU believes that, if patient safety problems are occurring despite these measures, FDA and other federal entities should be able to provide technical evaluations of where and how inspections can be improved.
Inspections have risen since GDUFA, now in its third round, but, as with other User Fee Agreements concluded with industry for branded prescription drugs, medical devices, and other areas, it is vital for the legislative branch to exercise its oversight function regarding the value received for the fees that are paid. Taxpayers, whose general fund contributions also provide resources for medical product regulation, deserve this level of accountability from government as well. In the case of these User Fee Agreements, such oversight should not be the sole province of one committee whose primary jurisdiction is health care or revenue. This Committee has already held two hearings on the topic of drug safety; we would urge the Committee to consider calling witnesses from the FDA and other government entities involved in supply chain safety to testify in future proceedings.
If the goal of the hearing is to discuss onshoring drug supply chains, other policy directions will need to be taken.
At its September 17 hearing, the Committee asked pointed questions of witnesses, particularly those connected with generic and biosimilar manufacturing, about whether their use of foreign Active Pharmaceutical Ingredients (APIs) caused unacceptable patient safety risks with their products. NTU would urge a wider view of the benefits that a diverse supply chain has for the United States. A report released last week from the Competitive Enterprise Institute’s Jeremy Nighohossian reminds us of these benefits for pharmaceuticals and those who need them:
While the US may offshore production and import large quantities, this has tended to allow US manufacturers to focus on producing higher-value products, creating a global trade system where the US is at the top of the value pyramid and imports the basics from less developed manufacturing economies. This is one way in which trade makes everyone better off, through distributing manufacturing efficiently.
While the pharmaceutical supply chain shifted to producing more generics in Asia and even many brand drugs in Europe, US employment in pharmaceutical manufacturing actually increased. It is up by about 75,000 jobs since 2011, rising three times as quickly as the US population overall. Since 1987, the employment in pharmaceutical manufacturing has risen twice as fast as the population. People often make the mistake of thinking that increased imports mean fewer jobs for Americans, but it often means just different (and better) jobs. It doesn’t always mean more jobs in an industry, either, but it happens more than one would expect.8
Thus, recent proposals to levy massive tariffs on imported medicines may backfire on the American economy and for the branded as well as generic pharmaceutical sector. As Nighohossian further explains:
Would production shift to the United States, though? And if so, which production? Generic manufacturing is very low margin because it’s commodified and simple and highly competitive. A tariff that raises the sales price would tend to put some manufacturers out of business, reduce their competitiveness, and reduce the quantities manufactured. Given the continued competition from abroad, we would expect profits to remain low, and the US would be unlikely to produce more generic products domestically. The only result of the tariffs, all other things being equal, would be increased cost to domestic consumers. How much costs go up will be hard to disentangle from the complicated nature of American health care, where insurance companies and PBMs are negotiating prices and creating delivery networks and also in light of President Trump’s developing Most-Favored-Nation drug price policy.9
And as NTU has explained elsewhere, the Most Favored Nation pricing proposal is a grave threat to taxpayers, portending far more negative consequences than, for example, a concerted effort to negotiate a NATO-style commitment from other countries to share a greater burden of prescriptions drug spending (especially for innovator drugs) than they currently shoulder.
Overall, we believe the Committee should exercise caution over the tendency to suspect all foreign sources of pharmaceuticals, especially APIs, as a threat to America’s security. For instance, generic and biosimilar providers, which are a key component to the U.S.’s unique environment that offers both access and affordability for prescription drugs, depend upon high-quality APIs to manufacture their goods. As NTU explained in comments earlier this year on its Section 232 investigation into pharmaceuticals:
Raising the costs of certain API imports would erode this trade advantage and impose higher costs on innovator drugs that show up in Medicare, Medicaid, and other taxpayer-supported health programs. Discoveries that could occur here, thereby bending the cost curve over time, will either shift abroad or never occur in the first place. For their part, generic manufacturers already operate on extremely thin margins to remain profitable, even as their sales volumes increase. Tariffs will raise the costs of their inputs as well, perhaps leading some firms to cease operations here.10
The United States should avoid imposing high tariffs on prescription drugs, including generic drugs. According to a recent New England Journal of Medicine article, “If finalized, the application of pharmaceutical tariffs under Section 232 would upend long-standing trade conventions that have protected medicine imports from tariffs, increase costs for public health care payers, and potentially reduce the availability of important generic medicines in the United States.” The report notes that most U.S. generic drug imports originate in India and Europe, and that both regions have undertaken efforts to reduce their reliance on active pharmaceutical ingredients provided by China.11 New tariffs on generic drugs with low profit margins would increase their cost and potentially reduce the supply of generic goods available to compete with higher-priced brand name drugs.
Compulsory licensing and attempts on the part of other countries to obtain Trade-Related Aspects of Intellectual Property Rights (TRIPs) waivers are yet another way that markets abroad attempt to benefit financially from U.S. discoveries. As NTU has explained before, such schemes, if U.S. leaders allow them to proliferate further, will damage America’s standing as the strongest economic and health care innovator in the world.12 These are very real threats to our national security.
If onshoring is to occur in an organic manner that creates a net gain for Americans, sound tax policy is the best position from which to begin. The provisions in comprehensive legislation President Trump signed into law in July are ideal in this regard, by making permanent the full and immediate expensing, research and development expensing, and 163J interest provisions permanent, as well as strengthening the Foreign-Derived Intangible Income provisions. Pharmaceutical manufacturers of all types have responded positively to these policies with tens of billions of dollars in new U.S. investment commitments. When combined with streamlined drug approval processes, new pilot programs to strengthen pharmaceutical affordability programs, and recent developments in consumer-driven drug purchase markets, these policies represent a sound approach to putting American patients and taxpayers first.13
Conclusion
As NTU has noted many times, no other country in the world can boast of such a successful policy environment that both encourages discoveries to reach patients (nearly 90% of newly launched drugs worldwide are available here) and controls costs (over 90% of prescriptions written in the U.S. are for generics).14 Indeed, unbranded generics are, on average, about one-third less expensive in the United States than in other countries with significant generic markets.15 To the extent that branded prices are higher here than abroad, a combination of foreign governments’ policies are often contributing to that trend.16
This strategic asset of drug access and affordability should be strengthened, not undermined.
Thank you for your consideration of these comments, and, should you have any questions on this or any other fiscal or regulatory matter before USTR, we are at your service.
Sincerely and respectfully,
Pete Sepp, President
National Taxpayers Union
1 See, for example, the Congressional Budget Office report on the growth of Medicare and Medicaid costs at: https://www.cbo.gov/publication/60127.
2 For further analysis of how branded and generic prescription drugs can have a salutary effect on the cost trajectories of taxpayer-funded health care programs, see the lengthy NTU analysis at: How Much is Medicine Worth to the American Taxpayer? A Cost-Benefit Analysis - Publications - National Taxpayers Union.
3 For the full analysis, see: 20240227_FDA_Article.pdf.
4 See the full letter at: Open-Letter-On-Importation-Legislation.pdf
5 For further details, see: New report reveals illegal ingredients for knockoff weight loss drugs flooding into U.S. from foreign sources, endangering patient safety – Partnership for Safe Medicines.
6 For background, see: FDA User Fees: Examining Changes in Medical Product Development and Economic Benefits - NCBI Bookshelf; and FDA Human Medical Product User Fee Programs | Congress.gov | Library of Congress.
7 For background on GDUFA, see, for example, the following sources: The generic drug user fee amendments: an economic perspective - PMC; Implementation of the Generic Drug User Fee Amendments of 2012 (GDUFA) | FDA; and Final-GDUFA-III-Commitment-Letter.pdf.
8 See the full study at: I, Pharmaceutical - Competitive Enterprise Institute.
9 Ibid.
10 See the NTU comments at: Section 232 Tariffs on Pharmaceuticals Will Increase Costs and Weaken U.S. National Security - Publications - National Taxpayers Union.
11 See the study at: The Risks of Pharmaceutical Tariffs for Generic Drug Availability | New England Journal of Medicine.
12 For further details on TRIPs waivers, see an analysis from NTU’s research arm here: Instead of Waiving IP Rights on Innovation, America Should Vaccinate the World - Publications - National Taxpayers Union.
13 See, for example, NTU’s recent work at: Rebate Model Pilot Can Boost 340B's Mission, Reduce Costs - Publications - National Taxpayers Union; and Most Favored Nation Drug Pricing Model Won't Cut Costs for Americans - Publications - National Taxpayers Union
14 See NTU’s commentary at: https://www.ntu.org/publications/detail/hatch-waxman-drug-patent-law-meets-middle-age-and-taxpayers-can-celebrate.
15 For further analysis, see: International Prescription Drug Price Comparisons: Estimates Using 2022 Data | RAND
16 See, for example: https://www.linkedin.com/pulse/time-end-foreign-free-riding-fix-global-imbalance-k1huf/.