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Analysis

4 Takeaways From Pharma Testimony at Senate Drug Pricing Hearing

By Jack O'Brien  
   February 26, 2019

Major industry leaders defended themselves against accusations of immoral price hikes, telling senators that they intend to provide patients with affordable access to cutting edge medical breakthroughs.

Executives from seven major pharmaceutical companies testified that they remain committed to working with federal lawmakers on ways to address rising prescription drug prices, despite charging that insurers and pharmacy benefit managers (PBMs) are as much, if not more, to blame for the current situation. 

The long-awaited Senate Finance Committee hearing on drug pricing featured a lengthy and at times contentious line of questioning from Republican and Democratic members seeking solutions for one of the nation's most expensive healthcare issues.  

Pharmaceutical executives agreed with the need to promote price transparency and seemed open to potential regulatory and legislative policies that could achieve such ambitions.

But Senate Finance Committee Chairman Chuck Grassley, R-Iowa, and Ranking Member Sen. Ron Wyden, D-Ore., also pressed pharmaceutical executives to expand on their promises to work with Congress on meaningful answers to rising drug prices, especially in consideration of HHS' recent rebate proposal and several pieces of legislation that would revise the incentive structure for drugmakers. 

Below are four key points from the committee's hearing and commentary from healthcare players on what they expect to transpire next.

Who testified:

  • Richard Gonzalez, CEO of AbbVie Inc. 
  • Pascal Soriot, CEO of AstraZeneca 
  • Giovanni Caforio, MD, CEO of Bristol-Myers Squibb Co. 
  • Jennifer Taubert, Executive Vice President and Worldwide Chairman of Johnson & Johnson's Janssen Pharmaceuticals 
  • Kenneth Frazier, CEO of Merck & Co., Inc. 
  • Albert Bourla, DVM, PhD, CEO of Pfizer 
  • Olivier Brandicourt, MD, CEO of Sanofi 

 

1. Pharma defends medical breakthroughs and needing room for further innovation

Repeatedly, pharmaceutical executives referred to the contributions their respective companies have made to modern medical care through research and development (R&D).

However, they warned lawmakers that excessive governmental interference in these processes may hamper future efforts to innovate and aid consumers.

All seven companies reported that R&D budgets exceeded marketing budgets last year, excluding administrative costs, which has allowed them to focus on the goal of bettering clinical outcomes for patients by ensuring a lower need for hospitalizations. 

Lawmakers noted these efforts but questioned why pharmaceutical companies have been so protective of patents on widely used prescription drugs, such as Humira in the case of AbbVie, while also making it difficult for biosimilars to enter the market. 

Though stating that he supports protections for companies to have exclusivity on a product, Sen. John Cornyn, R-Texas, argued that the longstanding legal feud between AbbVie and Amgen over a biosimilar might require additional input from the Senate Judiciary Committee.

A point that fostered consensus among lawmakers and executives was during an exchange between Sen. Sheldon Whitehouse, D-R.I., and Merck CEO Kenneth Frazier on curbing the growing trend of corporate raiders who utilize off-patent monopolies for profit rather than R&D.

 

2. Blame goes to PBMs and insurers

Pharmaceutical executives were in agreement that PBMs play a significant role in the high prices faced by consumers, stating that the entities are powerful negotiators against drugmakers. 

This narrative was assailed by members of the committee, with Wyden saying that high list prices are under control by drugmakers and accusing them of "stonewalling" on diminishing these prices. He urged drugmakers to focus on what they can do to affect lower prices, adding that PBMs will "have their day."

AbbVie CEO Richard Gonzalez said there are two issues at play when it comes to prescription drug pricing efforts: affordability to system and affordability to patient, arguing that changes need to be made with the consumer's bottome line in mind.

There was some disagreement when it came to expanding the ability for states or Medicare to directly negotiate drug prices like the Veterans Administration, prompting some to see it as a move to maintain the present dynamic.

“The pharma industry wants to keep the current system in place, and it’s succeeding in doing so," David Henka, CEO of ActiveRADAR, a pharmacy benefit solution company, said in a statement to HealthLeaders. "Even after today’s hearing, medication prices will continue to rise at a rapid, unrestricted pace. In the current congress it is very unlikely that there will be any significant movement toward reforming drug pricing.”

 

3. Potential HHS rebate reform rule earns pharma praise

As pharmaceutical executives expressed disdain for misaligned incentives hampering the healthcare system, they lavished praise on the Trump administration's new proposal to eliminate PBM rebates.  

All seven executives committed in to looking at lowering prices should the administration finalize its rebate rule, though Frazier added the caveat that this was based on no company facing a financial disadvantage as a result.  

Frazier also argued that one factor causing drugmakers to avoid lowering list prices has been the inevitable financial punishment by the market.

Ken Thorpe, PhD, former Deputy Assistant Secretary for Health Policy in HHS during the Clinton Administration, told HealthLeaders that reform to the rebates PBMs rely on is likely to be enacted as lawmakers seek to lower drug prices.  

"The problem isn't that PBMs are bad at their job -- securing discounts and rebates from drug manufacturers. In fact, they're quite good at it. Consider that just last year, pharmaceutical companies dished out $153 billion in discounts and rebates to PBMs. This was a 159 percent increase from the discounts they distributed in 2012," Thorpe said. "The problem is that patients don't always benefit from these massive discounts. To ensure that patients see the totality of these discounts, we should remove PBMs from the drug industry rebate equation completely."

Thorpe added that he supports the recent rebate proposal, citing estimates that the policy change would result in savings of nearly $20 billion by 2028.

 

4. Need to move towards value-based arrangements, stronger biosimilars market

During opening statements and throughout the course of Tuesday's testimony, pharmaceutical executives urged Congress to help improve the biosimilars market and shift toward value-based arrangements. 

Under the banner of fixing incentive alignments, Frazier supported a more robust biosimilars market in the U.S., like the one found in Europe.

Sen. James Lankford, R-Okla., discussed the market barriers that are currently in place and harm opportunities for biosimilars to enter the market, soliciting feedback from drugmakers on an approach to fix that.  

Bristol-Myers Squibb CEO Giovanni Caforio, MD added that flexibility with a value-based system would be an important strategy for lowering drug prices for patients, as drugmakers would be paid on clinical outcomes for patients rather than simple volume of pills sold.

 

Bittersweet industry reaction

"While today's hearing won't lead to any concrete legislative changes in the present - Democrats and Republicans will continue to spar over the details of any real policy - it will be a PR nightmare for the industry," Tom Kottler, CEO of HealthPrize Technologies, told HealthLeaders in a statement. "In an environment in which 73% of Americans want the government to do more to control the cost of prescription drugs, pharma would be wise to course correct now and develop enterprise-level responses around medication adherence, before the course is corrected for them."

Despite Kottler's warnings, stocks for all seven drugmakers were up significantly following the end of the hearing. 

Stephen J. Ubl, CEO of Pharmaceutical Research and Manufacturers of America (PhRMA), issued a press statement emphasizing the commitment of drugmakers to improving the drug pricing situation in America.

"During today’s Senate Finance Committee hearing, our member companies demonstrated the industry’s commitment to working with members of Congress on both sides of the aisle on policies to transform our health care system," Ubl said. "Significant reforms aimed at changing the marketplace will be disruptive for our industry, but we believe they are necessary to improve patient affordability and lower costs."

 

Additional notes from the hearing:

  • Sen. Debbie Stabenow, D-Mich., was among the most vocal members when it came to criticizing the large amount of federal grants for pharmaceutical R&D.
  • Unanimous response: all seven drugmakers account for public outcry in making drug pricing decisions but do not account for a potential congressional hearing, and support the CREATES Act.
  • Sen. Bill Cassidy, R-La., urged implementation of the international pricing index under consideration by the Trump administration, saying it's not perfect but adds some level of "reasonableness" to the process. 
  • Sanofi CEO Olivier Brandicourt, MD countered Cassidy by saying that the index would end up comparing U.S. drug prices against countries where prices are imposed, which would not be ideal.
  • Sen. Cardin says American consumers are paying higher prices to pay for R&D that goes to medical innovation in other countries, which he views as a disconnect.
  • The congressional Democratic proposal for advanced notification of price increases received support from the seven executives though some stated that consistency in enforcing the policy was necessary for its success.
  • Sen. Maggie Hassan, D-N.H., chastised the executives for heralding medical breakthroughs that most consumers can't afford. 
  • Hassan also highlighted Johnson & Johnson's promotion of pseudoaddiction as a way to promote the sale of opioids for maximum profit, adding that it was difficult to take the company's promise to promote good health seriously given its prior behavior.

Jack O'Brien is the finance editor at HealthLeaders, a Simplify Compliance brand.


KEY TAKEAWAYS

Pharmaceutical executives were questioned by lawmakers about why they have not effectively reduced list prices for prescription drugs.

While acknowledging room for improvement, the executives also blamed PBMs and insurers for the high prices consumers face.

Industry watchers said that while substantive change is unlikely in the short-term, the public impression of Tuesday's hearing will linger negatively on drugmakers.


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