Pharma execs dig in for a fight against outraged senators

Reviewed by James Ives, M.Psych. (Editor)Feb 27 2019

Senators got their first opportunity Tuesday to prod drugmakers about the wallet-emptying prices they charge for prescription drugs.

Almost in unison, the executives expressed support for eliminating rebates that flow to industry middlemen instead of patients; for increasing transparency about how they set prices; for shifting to a more value-based pricing system, in which outcomes are rewarded. Together they demurred when asked to commit to lowering list prices on drugs like insulin and the blockbuster rheumatoid arthritis drug Humira.

The drugmakers — AbbVie, AstraZeneca, Bristol-Myers Squibb, Johnson & Johnson, Merck, Pfizer and Sanofi — appeared before the Senate Finance Committee as lawmakers mull how to best control rising drug prices. Several declined the committee's first invitation to testify last month, agreeing to appear after committee leaders publicly named them prior to Tuesday's hearing.

Outlining the problem, Sen. Ron Wyden of Oregon, the committee's top Democrat, said that last fall 10 companies accounted for half of all profits in the health care sector, nine of them drugmakers. He pointed out that all but one of the drugmakers represented Tuesday were among the top 10 profit-makers.

"Your profits are outsized compared to others in the industry, you get a massive portion of your revenue from American taxpayers, and you bear none of the consequences of high drug prices," Wyden said.

Sen. Chuck Grassley of Iowa, the committee's Republican chairman, emphasized the seriousness of the hearing, opening with an unusual reminder to the executives that it is a crime to lie to Congress and pressing them to commit to lowering prices.

Even Sen. Johnny Isakson of Georgia, a Republican who praised the industry for discovering lifesaving drugs — like the ones that help him live with Parkinson's disease — expressed reservations. "When I can't explain it, it's tough, and I can't explain the cost increases," he said.

Congress has spent decades trying to contain rising drug prices, leaving some skeptical that even broad bipartisan support and the backing of the Trump administration is enough to wrangle the deep pockets of the pharmaceutical industry.

But Tuesday's hearing offered some sense of what drugmaker opposition — or support — might look like.

Here are five key takeaways:

Targeting Rebates And PBMS

Each of the seven executives said they support eliminating rebates, or discounts negotiated by pharmacy benefit managers that lower the cost of drugs for those footing the bill — generally, insurance companies or larger employers. PBMs keep a portion of the rebate as payment, but patients are often the only ones who don't benefit.

Yet, when asked about the Trump administration's recent proposal to strip PBMs of their ability to claim rebates for brand-name drugs covered by government programs, not a single executive would commit to lowering list prices should the proposal be realized.

Drugmakers have long blamed PBMs for driving up costs, and — though they seemed to tone down their accusations after senators made it clear they would not tolerate finger-pointing — these executives were no exception.

Jennifer Taubert, the executive vice president and worldwide chairman of pharmaceuticals for Johnson & Johnson, called PBMs "extraordinarily effective negotiators." Albert Bourla, who became the chief executive of Pfizer last month, said the company sets its prices "through negotiations with PBMs, and they are very powerful." And Pascal Soriot, the chief executive of AstraZeneca, said the rebate system is "not sustainable."

They were met with some notable skepticism. Wyden pointed out that about 40 percent of drugs covered under Medicare Part D don't have a rebate, challenging the idea that rebates are at the heart of the problem. And PBMs, who weren't in the room, pushed back against the blame.

"Drugmakers alone have the power to set prices," JC Scott, the president and chief executive of the Pharmaceutical Care Management Association, the national trade organization for PBMs, said in a statement.

Debating List Prices

Wyden had little patience for the executives' emphasis on rebates, which he dismissed as "window-dressing." He was unequivocal: List prices set by the drugmakers are the real problem.

"I just want you all to know that the No. 1 reason consumers are getting hammered is because these list prices … are unaffordable," Wyden said.

While the pharmaceutical industry is prone to dismissing list prices due to the fact that relatively few pay them after rebates and other discounts are applied, those prices are used to calculate copayments for some — such as seniors using Medicare Part D.

Kenneth Frazier, the chairman and chief executive of Merck, called the system "regressive," lamenting that it is typically those without insurance who pay list prices.

"The biggest problem we have as a country is we have a system where the sickest and the poorest are subsidizing the others," Frazier said.

Grassley and Wyden each pressed executives to commit to lowering list prices, especially if the Trump administration passes its proposal to eliminate rebates in government programs like Medicare and Medicaid.

Executives balked, with some saying rebates would first need to be eliminated from the entire system, not just government programs.

"If the rebates were removed from the commercial sector as well, we would definitely reduce our list prices," said Soriot of AstraZeneca.

The pharma executives did express support for both the vague notion of increasing transparency about how drugmakers set prices, as well as for shifting to a more value-based pricing system. "Imagine a system in which Pfizer gets paid based on the number of heart attacks we prevent" rather than the number of pills sold, said Bourla of Pfizer.

Applauding The CREATES Act

All seven executives pledged support for the CREATES Act, which is designed to stop what Food and Drug Administration chief Scott Gottlieb calls "shenanigans" perpetrated by brand-name companies to block competition. Pharma firms often refuse to supply makers of generics with needed samples to develop rival, less expensive products or abuse safety rules as another way of hindering competition.

Alleged culprits include companies represented Tuesday. The FDA's "name and shame" list of those withholding samples, a list originally published last year, included AstraZeneca, Pfizer, Johnson & Johnson's Actelion division and Celgene, which has agreed to be bought by Bristol-Myers.

The unanimous support for CREATES seems to put the executives opposite their own trade group, the Pharmaceutical Research and Manufacturers of America, which has staunchly opposed the bill and spent millions of dollars last year lobbying on it.

On Tuesday, PhRMA CEO Stephen Ubl said the group is working with generics manufacturers "to jointly develop a modified version" of CREATES and would "work with policymakers on a bipartisan basis to advance this legislation."

Flap Over Prices Overseas

Senators hammered executives on price disparities between the United States and elsewhere, extracting admissions that the companies make money even in markets where prices are much lower.

"How is that not gouging the American consumer with high prices even though you're giving other people, Western, industrialized countries, a better deal?" Wyden asked Richard Gonzalez, AbbVie’s CEO.

"I think that you charge more here because you can, and American taxpayers are subsidizing all of you to be able to have incredibly high profits," said Sen. Debbie Stabenow, a Michigan Democrat.

Pharma bosses responded by saying that terms vary by market. Research and patient access could be threatened by over-regulation of U.S. prices, they said.

The result of lower prices in Europe is that "these medicines are available many years later than they are here," Frazier said. "They actually provide very few of these medicines early on to their populations."

Friction Over Patents

AbbVie, the maker of the top-selling rheumatoid arthritis drug Humira, came under especially intense — and notably bipartisan — scrutiny for its use of patents to thwart competition.

Wyden accused AbbVie of clinging to its exclusivity "like Gollum with his ring," preventing lower-cost generics from coming to market and easing the burden on patients' wallets.

Gonzalez said Humira's multiple patents covered its different uses as they were identified. "Remember, Humira is like nine different drugs, 10 different drugs," he said, referring to the fact that the drug is used to treat other diseases, such as Crohn's disease.

Sen. John Cornyn, Republican of Texas, was incredulous, pointing to the decades-long grip AbbVie has on Humira since it secured multiple patents on the drug without making changes to it, as well as the drugmaker's lawsuit to block another company, Amgen, from creating a cheaper, biosimilar version. (AbbVie ultimately settled, agreeing Amgen could release its version in 2023.)

Perhaps the Senate Judiciary Committee should also investigate AbbVie as a matter of anti-competitive behavior, Cornyn said, turning to Grassley, who is also on that committee. Grassley agreed.