Sanders Bill Would Make Generic Drug Manufacturers Pay Rebate

Published June 17, 2015

A bill aimed at lowering the cost of generic drug prices by forcing generic drug manufacturers to pay a rebate to Medicaid when their drug prices rise faster than inflation has been introduced in the Senate by Sen. Bernie Sanders (I-VT), the ranking member of the Senate Budget Committee, and in the House by Rep. Elijah Cummings (D-MD).

Sanders says the health care system is overly costly and that reining in high drug prices using the regulatory authority of the government is the best way to control consumer costs. Sanders is an avowed socialist and has pushed for a government-run single-payer health insurance system in the United States.

Generic drugs have long been seen as a way to keep drug costs lower by boosting competition, but both Sanders and Cummings say they are troubled by price spikes in the generic market and are offering the Medicaid Generic Drug Price Fairness Act as their solution.

A study published in The New England Journal of Medicine in 2014 found the price of the generic antibiotic doxycycline increased from 6.3 cents per pill to $3.36 per pill in the course of just one year.

Sanders and Cummings say extending rebates to generic drugs will save taxpayers $1 billion over 10 years.

Drug Application Backlog

Sanders and Cummings missed the boat with their proposal, says Devon Herrick, a senior fellow at the National Center for Policy Analysis.

“Generic drug prices can only rise when there isn’t enough competition to hold the prices in check,” Herrick said.

“Rather than demand generic drug rebates, they should propose ways to help the U.S. Food and Drug Administration process the backlog of 4,000 drug applications from firms applying to manufacture generic drugs,” Herrick said.

Price Controls and Shortages

John C. Goodman, a senior fellow at the Independent Institute and president of the Goodman Institute for Public Policy Research, says Sanders’ proposed price controls will lead to shortages, black markets, and patients being unable to get the drugs they need.

“This would not be something negotiated,” Goodman said. “It will be imposed, and manufacturers will find it is not profitable to sell in this market, so we will get shortages. Then we will get a black market, and the hospitals will take advantage of the situation because they get to buy the drugs cheaply due to the price controls. [They can then] resell those drugs to non-poor patients, which they have been doing with brand-name drugs.”

The bill would affect all generics sold in the United States, no matter where they are produced, but the United States already has the lowest-priced generic drugs in the world, Goodman says.

“They produce generic drugs in Canada, so they protect them [through import controls],” said Goodman. “They produce generics and import their brand-name drugs while keeping the price up on their generics and discriminating against U.S. imports. Then on the brand drugs, it’s the other way around: They squeeze the brand producer with price controls.”

Dr. Roger Stark, a health care policy analyst at the Washington Policy Center and a retired physician, says artificial controls on the prices of goods inevitably create shortages of those items.

“This is defies economics 101,” Stark said. “In fact, [such a policy approach] turns economics upside down.”

Bill Promotes Class Warfare

Dr. John Dale Dunn, an emergency physician and policy advisor to The Heartland Institute, which publishes Health Care News, says Sanders is a perfect example of a utopian socialist who promises the world but can’t deliver anything except economic contraction.

“His bill is just a formalized effort to promote class warfare by pitting himself against big corporations—you know, the ones that provide us with a pretty darn good quality of life by delivering goods and services like medicines, electricity, automobiles, and food,” Dunn said. 

Kenneth Artz ([email protected]) is managing editor of Health Care News.