April 29,2019

Grassley on the EpiPen: A Case Study in the Value of Oversight to Find Legislative Solutions

Prepared Floor Statement by U.S. Senator Chuck Grassley of Iowa
Chairman, U.S. Senate Finance Committee
EpiPen: A Case Study in the Value of Oversight to Find Legislative Solutions
Monday, April 29, 2019
Mr. President,
I’d like to call attention to an issue that has affected many families in Iowa and throughout the country: the cost of prescription drugs.
The cost of prescription drugs is an issue that comes up at almost every Q&A I hold with Iowans at my annual 99 county meetings.
In the last two months, I’ve started a bipartisan investigation with my colleague, Ranking Member Wyden, into the pricing of insulin.
That investigation extends to insulin manufacturers and pharmacy benefit managers.
We need to find out how manufacturers price their insulin products.
And we need to find out if pharmacy benefit managers are negotiating the lowest drug price possible from manufacturers on behalf of insurance plans.
This isn’t my first drug pricing investigation.
In recent years, I’ve investigated Gilead’s pricing of its Hepatitis C drugs, Sovaldi and Harvoni.
I’ve also investigated Mylan’s EpiPen price increase.
And let me tell you, oversight works.
I’ve said it before, and I’ll say it again, Congress has a constitutional responsibility to engage in robust and aggressive oversight of the federal government and its programs.
My EpiPen investigation is a perfect example.
Several years ago, I began to receive letters, phone calls, and emails from my constituents about the high price of the EpiPen.
In 2007, a pack of two EpiPens cost $100. By 2016 it had skyrocketed to over $600.
That was a substantial price increase.
So, I wanted to find out what was happening and what could be done to fix the problem.
My investigative and policy focus soon turned to the Medicaid Drug Rebate Program.
The Medicaid Drug Rebate Program is a contributing factor that has played a part in how much money the government and taxpayer pays for some drugs.
As a condition for participation in the program, drug companies have to pay a rebate to the federal government and states for the drugs they offer.
Generally speaking, the rebate dollar amount is contingent on whether a drug is considered a brand name drug or generic.
A brand name drug pays a rebate of the greater of 23.1 percent of the average manufacturer price or the difference between that and the drug’s best price.
The rebate amount is raised if the average manufacturer price increased faster than the rate of inflation.
A generic drug’s rebate is 13 percent of the average manufacturer’s price.
Unfortunately, the rebate program has not worked as designed.
Drug companies have been able to game the system.
They pay smaller rebates than they’re supposed to, and the taxpayer foots the bill.
EpiPen is a perfect example of this.
Let me tell you how this works.
Mylan classified the EpiPen as a generic under the Medicaid Drug Rebate Program rather than a brand name drug.
After I asked CMS about that classification, they told me the EpiPen should not have been classified as a generic.
Because of this incorrect classification, Mylan only had to pay a 13 percent rebate instead of a 23.1 percent rebate.
That means less money was returned to the federal taxpayers and the states.
According to CMS, from 2011 to 2015, total Medicaid spending on EpiPen was $960 million.
After rebates, net Medicaid spending was still approximately $797 million.
Medicare spending on EpiPen under those same years was $335 million.
And taxpayers and the states were on the hook for these exorbitant overpayments for the better part of a decade.
When I saw what was happening, I asked the Health and Human Services Inspector General to look into these practices
Based on data already on file, the Inspector General was able to calculate the potential lost rebate value dating back to 2006.
The Inspector General found that the taxpayers may have overpaid for the EpiPen by as much as $1.27 billion over 10 years because of the incorrect classification.
Eventually, Mylan settled a False Claims Act case with the Obama Administration’s Justice Department for $465 million.
That’s a far cry from how much Mylan got from taxpayers while it was pulling this charade.
Eight hundred million dollars less.
Upon learning of the settlement, I expressed my extreme disappointment to the Justice Department.
It just didn’t seem the taxpayers had been made whole.
According to Attorney General Miller of Iowa, my home state received $1.5 million from that settlement.
However, after repeated requests to justify how that amount made Iowa whole, he has failed to provide an answer.
So not only did Mylan’s steep price hike for one of the most widely needed drugs in this country hit families hard, it also hit the taxpayers’ bottom line.
We shouldn’t have to depend on lawyers and lawsuits to get taxpayer money back
Government agencies should be responsibly overseeing the programs that they’re in charge of.
During the course of my investigation, it became clear that CMS didn’t believe it had the legal authority to require drug companies to reclassify drugs and impose civil monetary penalties for incorrectly classifying drugs.
Except for a few emails sent from CMS to Mylan’s representatives questioning the EpiPen’s classification, for years it did nothing.
CMS wasn’t doing its job and Mylan took advantage.
The Inspector General has also stated that it lacked the legal authority to affirmatively pursue penalties for the submission of inaccurate drug classification data.
And as a result, Mylan was able to escape accountability for a long time, costing taxpayers billions of dollars.
And that’s just one case.
Other drug manufacturers are gaming the system, too.
In a December 2017 report, the Inspector General found that 885 drugs may have been potentially misclassified.
Specifically, the Inspector General found that from 2012 to 2016, Medicaid may have lost $1.3 billion in rebates for 10 potentially-misclassified drugs with the highest total reimbursement.
It’s clear that the law needed to change to provide clarity on who has what authorities and to hold the government and the private sector accountable.
As a result of the findings in my EpiPen investigation, I, along with my colleague Senator Wyden, drafted and Congress later passed the Right Rebate Act.
The Act, which was passed with strong bipartisan support, fixes the problems that I identified through my investigation.
It closes the loophole that has allowed pharmaceutical manufacturers to misclassify their drugs and overcharge taxpayers by billions of dollars.
It provides the HHS secretary the authority to require drug manufacturers to reclassify their drugs and impose civil monetary penalties when drugs are knowingly misclassified.
It provides HHS with additional authorities to monitor drug manufacturers who participate in the Medicaid Drug Rebate Program.
And it provides the states the ability to recover incorrect rebate amounts.
Finally, it imposes reporting and transparency requirements on HHS.
For example, it requires the Secretary to submit a report to Congress on an annual basis that describes:
The covered drugs that have been misclassified, the steps taken to reclassify the drugs, the actions the Secretary has taken to ensure the payment of any rebate amounts which were unpaid, and an accounting of how any funds have been used for oversight and enforcement of the new law.
All of these fixes and updates are now in place because my constituents contacted me about a real-world problem that was affecting their health and their wallets.
I then instructed my oversight staff to investigate the problem.
They acquired the evidence, uncovered the facts, and exposed the holes in existing law.
Then, I instructed my policy staff to take those findings to plug the holes and solve the problem with new legislation, which is now law.
That’s exactly how it should be done.
Mr. President, that is Oversight 101.
Oversight brings transparency, and transparency brings accountability.
Oversight works, plain and simple. And the Right Rebate Act is proof of that.

I yield the floor.