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Senate HELP Committee Hearing On Drug Pricing Shows The Deep Divide In Congress

While I covered the topic in my Newsfeed on February 8 and 9, I thought it was important to blog about the February 8 Senate Health, Education, Labor and Pension (HELP) drug price hearing. I have listened to every minute of the almost three-hour drug maker CEO hearing (where three brand drug makers testified) as well as an additional thirty-minute hearing presenting the views of advocates and researchers. I want to share my reaction.

First, it is important to remember that, while I am a Republican, I march up the middle of the spectrum on health policy in general and share many of the views that Democrats do on drug pricing. I tend to favor what the Democrats have done on drug pricing because I think movement needs to happen and what has passed in the Inflation Reduction Act’s (IRA) Medicare drug price negotiations is a good experiment.

Second, the issue of drug pricing is complex and a 3.5-hour hearing certainly does not do the issue justice. This blog will not, either.

Third, my impressions are that Democrats tend to have a better command of the issue overall and are committed to reform. Some of them are more radical on drug pricing and could institute policies that conceivably cripple the industry. But some Democrats also seem sympathetic to the need for balance.

Most Republicans have knee-jerk reactions to drug pricing and tend to sycophantically homilize from the Big Pharma bible on free markets and how all innovation will somehow be crippled if prices are negotiated. This includes HELP Ranking Member Bill Cassidy of LA and members Rand Paul of KY and Mitt Romney of UT (although Romney did admit to some uncompetitive factors and opaqueness). Paul seemingly was the most militant on the issue, arguing price controls are evil and the Democrats’ proposals would bring us to socialism.

At the same time, there are thoughtful Republicans who are balanced, too, including members Susan Collins of ME and Mike Braun of IN. For me, a notable moderate in the Democratic side was Tammy Baldwin of WI. All three understand the benefit of drug innovation and the value of drugs, but also believe that some change is needed.

I have argued that the GOP has no agenda on drug pricing and for the most part that is right. But the moderate views of some Republicans give me hope that someday we could have a thoughtful and broad approach on drug pricing and innovation in American healthcare.

Healthcare Labyrinth website resources

Here are some previous blogs on drug pricing for you to review:

https://www.healthcarelabyrinth.com/inflation-reduction-acts-medicare-price-negotiations-should-have-small-impact-on-innovation-but-positive-impact-on-american-lives-and-what-we-pay/

https://www.healthcarelabyrinth.com/the-insanity-of-drug-pricing-and-shortages-a-christmas-story/

https://www.healthcarelabyrinth.com/pbm-transparency-and-reform-is-a-big-trend-in-the-american-healthcare-system/

Here is a major podcast I did on the issue as well:

https://www.healthcarelabyrinth.com/5-modeled-in-part-on-processes-in-other-developed-countries-the-medicare-drug-price-negotiations-should-save-money-promote-better-outcomes-and-have-little-impact-on-innovation/

The hearing links

The main almost three-hour hearing regarding the brand drug maker CEOs: https://www.c-span.org/video/?533414-1/pharmaceutical-company-ceos-testify-prescription-drug-prices

A short thirty-minute hearing regarding leading advocates and researchers:  https://www.c-span.org/video/?533414-2/health-care-advocates-researchers-testify-prescription-drug-prices

The Democratic majority’s report on brand drug makers: https://www.help.senate.gov/imo/media/doc/big_pharmas_business_model_report.pdf 

Key portions of the first hearing to watch

If you cannot watch the whole three-hour hearing with the CEOs of brand drug makers, I suggest the following.

Chairman Sanders’ opening statement: from the beginning of the video to about 13 minutes.

Ranking Member Cassidy’s opening statement: from about 13 minutes to about 21 minutes.

Sen. Susan Collins, a moderate Republican voice: from about 2 hours to 2:08.

Sen,. Mike Braun, a moderate Republican voice: from about 2:15 to about 2:23.

The Democratic report

Admittedly, it is a partisan report, but it goes to the core of Americans’ frustration with drug prices – big drug makers against the little guy patient. It is an explosive report that will be used by President Biden and Democrats running for Congress this year. Its fundamental findings also cannot be debated. Here are some of them and many of these statistics are also well validated in my book, The Healthcare Labyrinth (available at the site you are now on). Many Republicans may want to bury their heads in the sand on these issues or obfuscate them, but it does not change the fact that Americans are suffering under the weight of obscene prices.

  • One out of four Americans cannot afford their medications.
  • Ten large pharmaceutical companies made over $112 billion in profits in 2022.
  • The amount spent by Johnson & Johnson, Bristol Myers Squibb, and Merck (the three company CEOs who appeared at the hearing) on stock buybacks (to inflate stock prices), dividends, and executive compensation often exceeds research and development spending. Here are stats for 2022 below. In summary, for the three companies combined: margins, stock buybacks, executive compensation, and dividends were twice what investments in research and development were.

Brand Drug Company2022 Profit (rounded)2022 Stock Buybacks, Dividends, and Executive Compensation (rounded) (Merck had no stock buybacks in 2022)2022 Research and Development (rounded)
Johnson & Johnson$17.9 billion$17.8 billion14.6 billion
Bristol Myers Squibb$6.3 billion$12.7 billion9.5 billion
Merck$14.5 billion$7.0 billion13.6 billion
Total$38.7 billion$37.5 billion37.7 billion
  • The three drug makers made more revenue and profits on leading drugs in the U.S. than in the entire rest of the world. The CEOs at the hearing readily admitted this.
  • Prices for the companies’ drugs in the United States are manyfolds more in the U.S. than in other developed countries. This is both on a gross and net price basis.
  • Drugs are not only introduced at exorbitant prices but also inflate considerably over time, well more than inflation.
  • Brand drug makers use the patent process and other activities to delay generic or biosimilar introductions well beyond the patent periods. This is done to preserve high prices and margins. Generics appear in other developed countries sooner.
  • The three companies spent almost $386 million on political and lobbying activities from 2004-2023.

Sanders comments at the hearing

Sanders was right about a number of things at the hearing:

  • Polls do show that a majority of Americans believe prices are too high and government needs to do more. Republicans generally ignore the polls here. As I say with Obamacare repeal, the drug price issue too shows the GOP has a huge compassion gap and that could decide control of the houses of Congress in 2024.
  • Americans have a tough time affording their drugs
  • Americans spend twice as much per capita as those in other developed countries.
  • Not only are introductory prices higher, but they inflate considerably over time, causing even more pain for Americans.
  • There are vast differences in prices on popular drugs used by seniors and others.
  • High drug prices not only affect Americans, but also has huge impact on government costs.  These costs are clearly escalating.
  • On an annual basis, excessive profits, compensation, dividends, and stock buybacks often far exceed research and development investment in the prized innovation brand drug makers talk about.
  • Brand drug makers constantly argue high prices are not their fault, but they have the overwhelming benefit of the current complex and opaque system. Yes, reform can occur in the drug channel overall, including pharmacy benefits managers (PBMs). Sanders alluded to the fact that brand pharma created the rebate system. And as Braun pointed out as well, brand drug makers have the power to direct reform. The question is: do they want to?
  • Drug companies clearly regulate the U.S. — not the other way around
  • Two-thirds of profits come from the U.S. – revenue in the American market is much greater than in other countries.
  • Lobbying and political contributions are outrageous. Contributions go to both parties.
  • Brand Pharma has three times the number of lobbyists than there are members of Congress.
  • When it comes to drug price negotiations and the Medicare drug pricing provisions of the IRA, all other developed countries negotiate prices.  More to the point, the Veterans Administration in our own country has done so for decades.

Cassidy’s response at the hearing

Cassidy was among those who characterized the brand drug makers as an example of the success of the free market and felt the hearing was a blame game and an attack on capitalism. He said he would gladly explore solutions but said the other side of the aisle is not interested in working together on the issue. He says Democrats are focused on social media influence here.

He argued there are perverse incentives throughout the healthcare system and used the example of the 340(b) program as not meeting its commitment to ensuring access to drugs for those less fortunate (this is a popular Big Pharma talking point).

Cassidy also said that it is easy to cherry pick healthcare issues to show America’s negatives. He mentioned the fact that Canada uses America to overcome its specialty care and life-saving cancer treatment problems. He also notes that access to newly developed drugs in other countries is much less than in the U.S. He says America would not tolerate not having access to all newly developed drugs. He even argued that people might die in other countries due to more restrictive access (another popular Big Pharma talking point). He did raise during his direct questioning the issue of rebate walls, where PBMs and brand drug makers negotiate formulary status and rebates to in part block uptake of generics and biosimilars.

My response to Cassidy

I don’t doubt that we need innovation driven by the free market, but Cassidy and other Republicans tend to forget that we really do not have a free market in the drug space. This is something Braun raised at the hearing. There, too, are perverse incentives in the entire drug channel, but it does not negate the fact that drug prices are too high and Americans cannot afford them.

As to the issue of access to newly developed drugs, I do agree that it is much lower in other developed countries. I generally find the number to be about 50% are available. But it also does not mean that other developed countries do not give their citizens access to critical drugs – just not every drug in each class. And if we really considered who has true access from an affordability standpoint, an argument could be made that poorer and perhaps average-income Americans have less access to life-saving drugs than those in other developed countries.

As for people dying due to lack of access to certain drugs, It is possible that some in other developed countries do not have immediate or timely access to drugs for cancer and other life-threatening conditions? But but some of that it is related to drug policies while more of it ties to overall health system issues. But the fact is that overall life expectancy tends to be much higher in these other developed countries. While a lot goes into that, a good part of it is the lack of drug affordability in the U.S. and its impacts on morbidity and mortality here.

The CEOs sang from their political hymnal

The CEOs’ presentation and defense smacked of being lawyered up. It stuck to the regular playbook we have heard for years.

  • They spoke about life-saving drugs in the areas of HIV, cancer, mental health.
  • They extolled their copay assistance programs and donations.
  • They attacked PBMs, drug-channel middlemen, and vertical consolidation of health plans and PBMs as the real culprits for high drug prices and out-of-pocket costs.
  • They urged the pass-through of rebates as patients don’t benefit from them at the point of sale.
  • They repeated arguments that other developed world citizens get access to about half of newly developed drugs.
  • They believe Americans rightfully pay more for early, broader, and faster access.
  • They argued drugs are a small part of overall spending and bring savings. This is their pricing for value argument.
  • They stated other developed companies do not support innovation.
  • They said they must also pay for failed drugs and that a majority of drugs did not return on R and D investments.

My response to the CEOs

There is no doubt drugs positively contribute to saving lives and reducing expenses. That is not the question. The issue is that drug prices are excessive and that they actually also serve as barriers to quality outcomes and extending life. Copay assistance are positive contributors but are more of a marketing tool for brand drug makers and would not be necessary (or at least not as much) if prices were indeed lower. 

But I do agree we need to reform all aspects of the system. See more below. And again on the question of rebates, brand drug makers are part of the problem. They could create different ways of distribution that would have a positive impact on prices at the point of sale.  They don’t want to do so because the rebate system actually preserves their power even though they trash it every chance they get.

And I agree that other developed countries do not support innovation. Democratic Sen. Chris Murphy made this point well at the hearing. In essence, he argued other developed countries are free-riding the system and reform here could change that dynamic. They might step up to fund more innovation, but right now brand drug makers give them the excuse not to. Republican Sen. Roger Marshall also alluded to the U.S. bearing the brunt of innovation. See more below.

Mike Braun’s admonition

If you have but a short time to listen in, check out Sen. Braun’s colloquy with the CEOs. It is very articulate as to why Brand Pharma needs to reform itself. Braun argued as I do that there is not really a free market when it comes to our drug world. He also admonished the CEOs to fix the percentage of excessive drug pricing that they do represent and control. His advice was that brand drug makers should not persist in what they are doing. He also challenged the idea that somehow the drug makers are locked into the process they have today. He argued they should reform lest they eventually see something far worse for them – a huge amount of government regulation. It is also not lost on him that costs are greater in America but outcomes are better abroad.

Summary

It was not a good day for brand drug makers. While the GOP regulars came to Big Pharma’s defense, the Democrats and some Republicans could very well be the coalition of the future to bring sanity to drug pricing.

The facts are that the drug market is not a free market. Negotiation is part of a free market system. There is no transparency. Brand Pharma is like a cartel. It sets excessively high prices at the beginning and inflates them each year tremendously. It sues to stop generics from entering the market, engages in patent abuse, has no transparency, conspires with others to keep prices high while consumers pay excessively at the point of sale (e.g., PBMs to create rebate walls), markets and advertises with abandon, and so much more.

Where the CEOs may have it right is that it is time for rebate reform. Former President Donald Trump once recommended that the safe harbor in federal law be removed for Medicare rebates. Maybe it should be for all drug purchases. Admittedly, we could see impacts in other areas of healthcare. PBMs and health plans use some retrospective rebates for profits, but also spend the rebate dollars to lower benefit costs elsewhere.

One other point that may also be true is that foreign countries are not paying their fair share for innovation. CEOs call it a lack of value in pricing and argue that is why international reference pricing could never be used in the United States. In some ways, drug makers like it that way. They concentrate most of their efforts in the United States, where the lion’s share of revenue and margins come from. They are happy to discount abroad as they still make money on these lower prices. But as Murphy noted, it is also high time to lower prices in the United States to pressure other developed nations to pay for innovation.

Would innovation be crippled? Most studies say no. And perhaps forcing other nations to increase their prices would help. So might greater government funding, which is responsible for a great deal of drug innovation in the first place.

And last, if drugs are so valuable, why does the U.S. have among the worst healthcare outcomes and highest costs of any developed nation? To the degree lower prices might impact innovation, there is the positive of affordability for so many Americans who struggle to pay for their drugs to keep disease states and conditions in check.

#drugpricing #ira #branddrugmakers

— Marc S. Ryan

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