NTU Comments on Pandemic and All-Hazards Preparedness Act

July 10, 2023

 

The Honorable Bernie Sanders, Chair

The Honorable Bill Cassidy, M.D., Ranking Member

Senate Committee on Health, Education, Labor, and Pensions

428 Dirksen Senate Office Building

Washington, DC 20510

 

Submitted Via Email: PAHPA2023Comments@help.senate.gov

 

Dear Chair Sanders, Ranking Member Cassidy, and Members of the Committee:

 

On behalf of the National Taxpayers Union, America’s oldest taxpayer advocacy organization, I am honored to submit the following comments on the staff-level discussion draft to reauthorize the Pandemic and All-Hazards Preparedness Act (PAHPA).

 

This 80-page discussion draft can, and should be, the basis for relatively straightforward legislation to ensure that the federal government, along with states and localities, will remain at a high readiness level for health emergencies. Unfortunately, one section of the draft would introduce new and highly controversial policies that have major implications for taxpayers. Title VI, Sections 601 and 602 would, under the innocuous names of “BARDA (Biomedical Advanced Research and Development Authority) and CDC (Centers for Disease Control) Reasonable Pricing Agreements” introduce a counterproductive set of regulations that bear a close resemblance to various forms of prescription drug price controls that some Members of the Committee have attempted to advance through other means. NTU opposes this language, for several reasons.

 

Sections 601 and 602 Do Not Provide for Adequate Analysis of How Taxpayer-funded Programs Recover Costs. The implication behind Sections 601 and 602 is that currently, and especially in light of Operation Warp Speed, taxpayers did not receive a full return on the federal government’s “investment” in these programs. This cost-benefit rubric is indeed important, one which public officials should constantly evaluate using all available tools.

 

Even employing the most expansive definition of the federal government’s “costs” associated with COVID vaccines – which included purchases of the final product – yields a total of over $37 billion.^[1] NTU would argue that taxpayers have had a sizeable return on that amount by now.

 

In an extensive paper NTU published earlier this year entitled “How Much is Medicine Worth to the American Taxpayer?” we gathered research from a variety of institutions and perspectives to make the following general observation:

 

Many public officials, focused on upfront government expenses for treatments, patients’ out-of-pocket costs, insurance regulations, and ‘bending the curve’ over a 10-year federal budget scoring window, tend to overlook the fiscal benefits that accrue to taxpayer-funded health care systems from investments made for innovative treatments. These include not only blockbuster drugs, but also generic and biosimilar medications, medical devices, telemedicine, and other therapies that reduce hospital stays or expensive surgeries.^[2]

 

The paper even cites an example that is directly relevant to PAHPA. By the calculations of the Biden administration’s Centers for Medicare and Medicaid Services, Medicare saved $2.6 billion in hospitalization expenses for the first five months of 2021 alone.^[3] Add to this subsequent savings for Medicare, on top of Medicaid and Veterans’ health systems, along with heavily subsidized insurance plans covering federal, state, and local employees, and the picture is clearer: U.S. taxpayers have likely more than recovered their $37 billion-plus investment in COVID vaccines.

 

Nor should the government revenue side of the ledger be ignored. As our paper noted, the Congressional Budget Office ominously projected in September 2020 that “individual income tax revenue would be $6.8 trillion from fiscal years (FYs) 2020-2023; in its May 2022 baseline, that estimate (including actual revenue totals from FYs 2020 and 2021) [was] $8.8 trillion – a more than $2 trillion difference in revenue over four years.”^[4]

 

Of course, vaccine development is not responsible for all this $2 trillion revenue improvement, but its impact cannot be discounted. Rapid, record-setting development of COVID inoculations contributed to business, worker, and consumer confidence that it was safe to engage again in regular economic activities, delivering, at a minimum, tens of billions in tax collections the federal government would never have seen.

 

If some future public-private partnership in a vaccine or other medication were to fall under the new “reasonable pricing” standard, would Sections 601 and 602 properly account for all the benefits noted above? Taxpayers may be forgiven for having some skepticism.

 

Still, this picture of bigger benefits over costs should not be difficult for policymakers to discern. There are other examples from the medical world where the partnership between the public and private sectors in developing products has yielded large savings to the government. As the NTU paper shows, from drugs now treating high blood pressure and other cardiac conditions, to future ones that could treat obesity or Alzheimer’s, the potential savings to taxpayer-funded health programs – in reduced hospitalization, surgery, and other expensive treatments – from these discoveries could amount to hundreds of billions of dollars.

 

Policymakers who designed laws such as the Hatch-Waxman Act^[5] and the Bayh-Dole Act had some recognition of how important such a calculus is: bending the cost curve in health care means keeping patients out of operating rooms, hospitals, and doctors’ offices. Vaccines, prescription drugs, medical devices, and diagnostic technologies can all contribute to doing so. Policymakers today should in turn recognize that Sections 601 and 602 do not sufficiently reflect this calculus.

 

The Authority for “Reasonable Pricing” Ranges from the Vaguely Defined to the Overbroad. Sections 601 and 602 attempt to establish criteria for what will constitute “reasonable pricing” in awarding future “grants, contracts, and awards” where the government under BARDA or the CDC may be partnering with a non-federal entity to research or develop a drug, medical device, biological product, or “another biomedical technology”. The latter term is so all-encompassing as to potentially make every single BARDA or CDC venture with outside entities a potential “covered product.”

 

The six factors established in PAHPA for what constitutes a “fair and reasonable price” for the “covered products” begin with “the value of the covered product to the public health including the impact of the price on access to the covered product.” The standard may be justifiable, but what will be the definition of “value” employed in this determination, and who will oversee it? This highly subjective term depends on a variety of factors, including the degree a given product increases productivity or longevity, and which types of taxpayer-funded health programs are included in the analysis. As NTU’s 2023 paper notes, the estimates of costs to the American health care system of obesity and its related diseases can exceed $500 billion.^[6] One Journal of Medical Economics study determined that for Medicare alone, “expanding coverage of anti-obesity interventions to eligible individuals could generate $20–$23 billion budgetary savings to Medicare over 10 years.” Another early study determined that delaying the onset of Alzheimer’s by five years “would save Medicare and Medicaid alone $47 billion in 2030.”^[7]

 

Such savings would almost certainly dwarf any kind of government “investment” in treatments for these two conditions by multiples, and more so if programs in Veterans Affairs and government employee health insurance were included. We wonder if this bona fide research from credible institutions would ever become a part of the government’s calculations of “value” under the regime established in PAHPA.

 

We also find it problematic that the Secretary of Health and Human Services would be able to take into account “the cumulative expected global revenues from the covered product” for “reasonable pricing.” Thousands of analysts inside and outside the industry ponder this revenue question on a daily basis for a variety of medical products, and make widely varying guesses that depend upon (to mention a few): “uptake” rates of a product, potential competition from other companies, the relative overall financial health of the marketing entity, the strength of global markets over 5-20 years, and the regulatory climate here and abroad.

 

Regarding the last factor, it is ironic that even as governments around the world (and interests here) persistently seek waivers of Intellectual Property protections for vaccines developed in the U.S. that would severely undermine “global revenues” of such products,^[8] PAHPA seeks to incorporate analysis that could encourage an inflated estimate of such revenues.

 

The sixth and final criterion in determining “fair and reasonable price” betrays the strategic ambiguity and mischief that could occur if Sections 601 and 602 become law: “Other factors, as the Secretary [of Health and Human Services] deems appropriate.” What could those factors be? A minimum level of federal tax the entities contracting via BARDA or with CDC must pay? Their commitment to any future regulatory, labor, or other mandates the federal government may wish to define? Whatever the case, will the Secretary be required to provide fair and reasonable public notice and comment for any rulemaking the Secretary “deems appropriate” to implement Sections 601 and 602? No such stipulation currently exists in the draft, once again signaling that a larger agenda on behalf of medical price controls may be at work here.

 

Retreads of International Price Index Schemes Suffer from the Same Defects. Sections 601 and 602 revive a concept with acolytes in both political parties for health care price controls: in addition to providing the Secretary with new pricing powers, a “backup” in the form of dictates already imposed by foreign governments with socialized medicine systems. This “Most Favored Nation (MFN) Index” would require subsequent public-private medical R&D arrangements to reflect the lowest price paid by Canada, France, Germany, Italy, Japan, and the United Kingdom for “a qualified countermeasure, qualified pandemic or epidemic product, security countermeasure, or related technology” (in the case of BARDA) or “covered product” (in the case of CDC).

 

The problems associated with this approach are legion. For one, it presupposes that a new development would take place at all, given that non-governmental entities participating with the federal government would even want to be subject to the future whims of agencies in six other countries.

 

But there are other, more fundamental flaws at work. In December 2018, NTU organized more than 150 economists in a letter to HHS Secretary Alex Azar, which warned of the significant drawbacks to an “International Pricing Index” proposed through the Executive Branch. They wrote:

 

In general, setting price controls at below-market rates leads to shortages, squeezes the cost bubble toward some other portion of the economy, and imposes a deadweight cost on society. In this case, price controls can lead to a reduction in patient access to certain drugs, less investment in the research and development of new drugs, and cost-shifting that raises the prices of other therapeutics. Ultimately, patients will suffer as cures are delayed or entirely undeveloped, while taxpayers will be denied potential savings from drugs that could obviate more expensive treatments in government healthcare programs, and the investment of capital in development of new medicines.^[9]

 

NTU subsequently joined a coalition letter led by FreedomWorks making the case against a sweeping MFN plan aimed at a spectrum of prescription medications:

 

Any form of price setting is a treatment of symptoms, not causes. Prices stem from the actions and demands of both individuals and groups. As has been shown repeatedly in countries with socialized health care systems, governments cannot expect to set the price of any good - let alone one as crucial as prescription drugs - below its market value without incurring painful consequences.

 

...With the MFN provision, the U.S. would, by definition, move itself to the back of the line and would be required to have the most stringent price controls globally. Pharmaceutical companies cannot afford to spend exorbitant sums to develop new drugs in a nation that has made itself the worst place on earth to try and recoup their investments.^[10]

 

We would point out that the potential for the Most Favored Nation scheme (and the “reasonable pricing” system) to seep into other federal government activities beyond BARDA and CDC is quite real. To confirm this, one need only examine the impact of Inflation Reduction Act provisions requiring manufacturers providing prescription drugs under Medicare Part D to either “negotiate” a government-favored price or pay a (likely unconstitutional) 95 percent excise tax on their product. Rules regarding the IRA’s negotiation process had not even been finalized before legislation was introduced to expand the “negotiation” ploy further into the medical economy.^[11]

 

Conclusion. In 2022 communications to House and Senate Committees considering reauthorization of FDA user fee agreements, NTU wrote:

 

While attaching narrow reforms to user fee reauthorization may occasionally be desirable – and, indeed, each reauthorization of a user fee agreement has included agency reforms already agreed to by the FDA and industry stakeholders – your reauthorization this year should avoid major changes or additions that could delay the reauthorization process or turn it into a partisan political football. The burden of proof should be on the lawmakers proposing major attachments to the user fee agreements to account for why such proposals are necessary, urgent, capable of bipartisan support, and specifically relevant to user fee reauthorization.^[12]

 

This observation is as timely and relevant to the PAHPA process today. Title VI, Sections 601 and 602 would indeed make “major changes or additions” that politically endanger the rest of PAHPA and are fraught with potential long-term impacts on the entire health care system – i.e., additional price controls beyond those imposed by the Inflation Reduction Act of 2022. We also fail to see how the “burden of proof” for “why such proposals are necessary … or specifically relevant” only to PAHPA’s reauthorization has been met. Whether Sections 601 and 602 are “capable of bipartisan support” remains to be seen, but in NTU’s opinion, Members of both parties on the Committee should shelve those provisions, if not permanently, then pending massive, thorough revisions that consider the interests of taxpayers as well as patients.

 

For Committee Members seeking policies that will better reflect the balance needed in the prescription drug realm, NTU’s paper from 2023 provides some guidance:

 

Using … case studies [of taxpayer savings from prescription drugs] as a backdrop, we offer several pro-consumer and pro-taxpayer policy alternatives to the more counterproductive paths of price controls, such as: streamlined Food and Drug Administration approval processes and expedited inclusion of cost-saving drugs in Medicare and other government reimbursement chains, guarding against punitive tax policies toward research and development, and removing policy incentives that distort list prices (to name just a few).^[13]

 

We reiterate, however, that even these alternatives should be thoughtfully debated via purpose-built legislation, rather than in a bill like PAHPA. Such matters are too important to the future of the nation to be buried in a narrow proposal to reauthorize a handful of public health emergency response programs.

 

Should you have any questions on these comments, feel free to contact Nicholas Johns of our team at njohns@ntu.org. Thank you for your consideration, and we are at your service.

 

Sincerely,

Pete Sepp