The Washington PostDemocracy Dies in Darkness

Drug executives grilled in Senate over high prices

Senators chastised drug company executives during a hearing over high cost of prescription medications on Feb. 26. (Video: Luis Velarde/The Washington Post)
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Top pharmaceutical executives lined up at a Senate hearing Tuesday and expressed deep compassion for patients suffering from disease. They decried high co-payments that shock consumers at the pharmacy counter. They denounced rebates they pay to insurance companies.

But while they were eager to indict a system they said is badly broken, they declined to commit to lowering their own prices.

The CEOs from Pfizer, Merck, Sanofi and others were subjected to a ritualistic grilling. But the executives survived the three hours of questioning largely unscathed by deflecting blame for their list prices to insurance companies, despite an admonishment from Senate Finance Committee Chairman Charles E. Grassley (R-Iowa) that he would not stand for finger-pointing.

The industry leaders said they are forced to set prices higher so they can pay big rebates to insurance companies and pharmacy benefit managers (PBMs).

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They acknowledged that practice especially hurts consumers without insurance, who pay full list price at the pharmacy, as well as those with coverage whose co-payment is a percentage of the list price. They insisted they are not to blame for the pain.

“The list price is actually working against the patient,’’ said Merck chief executive Kenneth C. Frazier, a stark acknowledgment that the industry’s role in setting prices is hurting individuals. “The people who can least afford it are paying the most.’’

The answer, Frazier and the other executives said, is not government price controls on drug prices or Medicare negotiation of drug prices, but rather getting rid of rebates throughout the system.

The Trump administration last month proposed eliminating rebates from certain Medicare and Medicaid programs. But the executives said that will not result in lower manufacturer list prices unless it is applied throughout the commercial insurance industry as well.

Senators repeatedly took the executives to task for patent and pricing practices that seem designed to protect profits, despite enormous subsidies they receive from American taxpayers in the form of National Institutes of Health research, and research and development tax breaks. Under questioning, most of the executives said their companies did not use the Republicans’ corporate tax cuts to lower prices.

“You pharma executives are here because the way you do business is unacceptable and unsustainable,’’ the committee’s ranking Democrat, Ron Wyden (Ore.), said in his opening statement. “Drugmakers behave as if patients and taxpayers are unlocked ATMs full of cash to be extracted, and their shareholders are the customers they value above all else.’’

At the outset, Grassley set a tough tone. “We’ve all seen the finger-pointing. Every link in the supply chain has gotten skilled at that,’’ Grassley said. “But like most Americans, I’m sick and tired of the blame game. It’s time for solutions.’’

He expressed dismay over arguments by drugmakers that the list prices are just starting points for negotiations with insurance companies and middlemen. That excuse leaves Medicare patients, consumers with high-deductible plans and taxpayers holding the bag for higher costs, Grassley said.

“We cannot allow anyone to hide behind the current complexities to shield the true cost of drugs,’’ Grassley said.

In addition to Pfizer, Merck and AbbVie, the top executives assembled before Grassley and other committee members represented AstraZeneca, Bristol-Myers Squibb, Johnson & Johnson’s Janssen Pharmaceuticals unit, and Sanofi.

After the hearing, Grassley said he plans to convene another hearing to dig into insurance companies and their allied pharmacy benefit managers.

Drug companies are on the defensive after Democrats recaptured the House with arguments that health-care costs are out of control. President Trump has capitalized on popular anger over drug costs, giving prescription drug executives rare cause for worry in a capital where they typically win their lobbying battles.

Grassley has said he opposes giving Medicare the power to negotiate drug prices, a move favored by Democrats. But he said he’s hopeful of passing legislation that would require drug companies to sell samples of their products to generic manufacturers, and he wants to push another bill to curb “pay for delay’’ deals that keep generics off the market even after brand patents have expired.

AbbVie received some of the harshest scrutiny at Tuesday’s hearing.

Its drug Humira has remained the biggest-selling drug in the world with the help of legal strategies that have kept generic versions off the U.S. market.

“AbbVie protects the exclusivity of Humira like Gollum with his ring,’’ Wyden said. “Thick cobwebs of patents, legal tricks, and shadowy deals with other drugmakers, all to keep the cash flowing.’’

Sen. John Cornyn (R-Tex.) expressed astonishment the company was able to extend market exclusivity on some uses of Humira until 2034, 31 years after its introduction. And Wyden forced AbbVie CEO Richard A. Gonzalez to acknowledge that the more than $10 million he received in bonuses over a multiyear span was based in part on Humira’s sales performance.

Sen. Maggie Hassan (D-N.H.) echoed the deep frustration she said she hears from residents in her home state, the first party primary state, where presidential candidates are already trooping to diners and general stores.

“Right now it is so convoluted and so not transparent that my constituents can’t figure out what the price of their medications should be day-to-day,’’ she said. “I feel like I need a PhD in prescription drug pricing to figure out how this industry works.’’

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But the baseline strategy for the assembled executives was pinning the blame for prices on insurance companies.

Pfizer chief executive Albert Bourla told the committee in his prepared testimony that insurance companies are not passing on the discounts from rebates to patients.

“None of the close to $12 billion of rebates that Pfizer paid in 2018 found their way to American patients,’’ Bourla said. “Pfizer supports reforms that would create a system in which transparent, upfront discounts benefit patients at the pharmacy counter, rather than a system driven by rebates that are swallowed up by companies in the supply chain.’’

Bourla and other executives repeatedly said they favored “value-based’’ reimbursement, under which drugmakers would get paid based on the number of strokes their medicines prevented or the number of cancer patients in full remission, “rather than the number of pills we sell,’’ Bourla said.

“In such a system, if our medicines do not produce results, we would be paid less,’’ he said.

The executives repeatedly emphasized the billions they spend on research and development of new drugs. Compared with other developed countries, Americans pay higher drug prices for brand prescriptions to support those discovery efforts, they said.

Grassley’s committee has begun an investigation of insulin prices, which put Sanofi chief executive Olivier Brandicourt under a particularly harsh spotlight. Insulin prices have generated intense outrage because the drug is many decades old and because Sanofi and two other manufacturers, Novo Nordisk and Eli Lilly, have boosted prices simultaneously. In his written testimony, Brandicourt also shifted blame to the insurance reimbursement system.

He differentiated between the “net price,” after rebates paid to insurance companies and PBMs, and the list price. Sanofi is actually gaining less net revenue as its rebates to insurers grow, he said.

The post-rebate “net price’’ of Sanofi insulin product Lantus has fallen more than 30 percent since 2012, Brandicourt said, while average out-of-pocket costs for patients with insurance have risen 60 percent. He cited Sanofi assistance programs that offer financial help to patients who cannot afford insulin.

The debate continued to rage outside the hearing room, with drug companies attracting negative reaction from the insurance industry and consumer advocates. Matt Eyles, president and CEO of America’s Health Insurance Plans, the industry trade group, said he was encouraged by manufacturers’ willingness to work on lower drug costs for patients.

“But we still heard much more from Big Pharma about casting blame on others for high prices,’’ he said. “Drugmakers alone set drug prices, they alone increase prices, and they alone could decide to reduce drug prices.’’