Pete Wallace, Head of U.S. Federal Government Affairs
Viatris maintains an unwavering commitment to access for patients, beginning with our ability to sustainably deliver affordable, quality medicines at scale, regardless of geography or circumstance. We leverage a geographically diverse and robust global supply chain that produces more than 250 medicines on the World Health Organization (WHO) Essential Medicines List and we are committed to advancing essential policy solutions to reduce barriers to treatment and enhance supply chain resiliency.
Policymakers on both sides of the aisle are increasingly focused on solutions to tackle drug shortages, including addressing market dynamics that can drive product discontinuations and market exits. The importance of market stability has been recognized by Congress and the FDA, with Commissioner Califf recently stating that the generics industry is facing “prices that are too low” and the resulting trend of drug discontinuations and shortages. Notably, the Senate Finance Committee has put forward a draft legislative proposal that would fix a key contributing factor to drug shortages: the Medicaid Generics Penalty.
Applying an inflation penalty to generic drugs in Medicaid has dramatically accelerated product discontinuation and discouraged manufacturers from entering the market for low-cost, essential medicines. Historically, inflation penalties have only been applied to brand drugs, however this was expanded to include generic drugs in the 2015 Bipartisan Budget Act, despite significant differences in brand and generic market dynamics. Inflation penalties were intended to apply to high-cost brand drugs with the ability to significantly increase prices, not low-cost generic drugs with multiple competitors and declining list prices. When Congress passed the Inflation Reduction Act, they expressly excluded the majority of generic drugs from the newly established Medicare Inflation Penalties because of these distinct differences between the brand and generic drug markets.
A recent analysis from Charles River Associates showed that inflation penalties can apply to generic drugs in the Medicaid program even when manufacturers are reducing their list prices. This flawed policy has led to instability in the generic drug market, deterring manufacturers from making low-cost essential medicines and applying financial penalties that are tied to circumstances outside of their control. The analysis from Charles River Associates also found that the Medicaid Generics Penalty is a significant contributor to drug shortages and identified a direct linkage between the application of the inflation penalty and the number of manufacturer exits in low-cost generic drugs. Academics, economists, and most recently FDA Commissioner Robert Califf have acknowledged the threat that shortages pose to both patients and the healthcare industry as a whole.
Drug shortages are a multifaceted issue but the role of market instability and race to the bottom pricing is clear. Viatris supports the Senate Finance Committee’s proposal to exempt multi-source generic drugs from the Medicaid Generics Penalty. This commonsense solution will provide much needed generic market stability, encourage competition, and reduce the frequency of drug shortages among essential generic medicines.