The Washington PostDemocracy Dies in Darkness

House Democrats find in three-year investigation that drug prices are ‘unsustainable, unjustifiable and unfair’

Drug prices were the focus of an investigation by congressional Democrats. (Dhiraj Singh/Bloomberg)

The pharmaceutical industry relies on drug-pricing practices that are “unsustainable, unjustified and unfair,” according to findings from a nearly three-year investigation by the House Oversight Committee.

The findings, released Friday, show that companies studied by the committee raised prices of common brand-name drugs during the past five years by nearly four times the rate of inflation. The report seeks to debunk industry contentions that companies’ price strategy is needed to plow money back into researching and developing new medicines, finding that revenue is substantially greater than those investments.

The 269-page report is the work of the committee’s Democratic majority. The panel’s chairwoman, Rep. Carolyn B. Maloney (D-N.Y.), said in a preamble that the report grows out of a review of 1.5 million pages of internal company documents and five congressional hearings, yielding what she called a “rare glimpse into the decision-making of many of the word’s most profitable drug companies.”

In a counterpunch, the Oversight committee’s Republicans issued their own drug-industry report, based on a less exhaustive look at companies known as pharmacy benefit managers, which act as go-betweens to manage drug benefits on behalf of private insurers, Medicare drug plans and other payers. The pharmaceutical industry and other critics have contended for years that PBMs, as they are known, are a major reason for the growth of drug spending because they receive undisclosed payments — called rebates — based on a medicine’s list price, so the higher the price the greater the payment.

“In seeking to cast [brand-name pharmaceutical] companies as the sole villains in the drug cost debate, [Democrats] disregard the benefits they provide the public in the form of treatments and cure” such as vaccines against the coronavirus, says the 19-page GOP report, a sequel to a forum on PBMs that the committee’s Republicans convened last month. The middlemen “use their market leverage to increase their profits, not reduce costs for consumers,” the GOP report contends.

Pharma companies have raised prices for new drugs and commonly used medications, prompting many patients to order medications across the border. (Video: Luis Velarde/The Washington Post)

The dueling portrayals of the root cause of high U.S. drug costs — and what to do about them — come at a politically sensitive moment. The House reports are intended to influence public sentiment and, especially, members of the Senate, who are preparing to consider a broad social-spending bill that Democrats pushed through the House last month. The legislation, called the Build Back Better Act, would usher in substantial changes to health care, other parts of the social safety net and the climate. President Biden is eager for Congress to adopt it.

That House bill includes several policies that are intended to constrain drug prices but are not as ambitious as what many liberal Democrats had sought. It would allow Medicare, the federal insurance system for older Americans, to negotiate directly with pharmaceutical manufacturers to lower prices for a limited class of as many as 10 expensive drugs, to be chosen later, including medicines for cancer patients, starting in 2025 and increasing to 20 drugs. That would break a prohibition on such negotiations since Medicare added drug benefits 15 years ago. The bill’s final shape is far more modest than earlier versions, which would have allowed negotiations on the price of up to 250 drugs.

The House bill also would limit to $2,000 a year the amount people on Medicare pay for medicine out of their pockets. And for people on Medicare, insulin would cost no more than $35 a month.

In recent days, Senate Democrats have begun preparing to move a version of the legislation through the chamber, and Senate Majority Leader Charles E. Schumer (D-N.Y.) has set a goal of passing it by Christmas. It is unclear whether that timing is realistic, and the bill faces a precarious path because the Senate is so narrowly divided that it could pass only if every Democratic member voted for it.

At a Capitol Hill news conference Friday to announce the Democratic report, House Speaker Nancy Pelosi (D-Calif.) said what she called the drug industry’s “outrageous price hikes” are “a kitchen table issue” and noted that lawmakers of her party have been trying unsuccessfully since 2006 to allow the Medicare program to negotiate prices.

Pelosi acknowledged that the negotiating power included in the Build Back Better legislation is “not as robust as I would like.” But she said it nevertheless would be historic, adding, “We look forward to a vote in the Senate very soon.”

Debra DeShong, executive vice president for public affairs at PhRMA, the industry’s main trade group, called the Democrats’ report “nothing more than a partisan exercise to justify an extreme proposal that will restrict patient access to lifesaving cures and treatments.”

“Like the disastrous bill championed by Democratic leaders, this misleading report fails to address abusive practices by insurance companies and middlemen who profit off a broken system while patients can’t afford their medicines,” DeShong said. “This so-called investigation has ignored the real affordability problems people face, like rising deductibles and other out-of-pocket costs.”

The oversight committee’s Democratic investigation focused on 10 pharmaceutical companies that sell a dozen drugs that it says cost Medicare the most.

The review of the companies’ practices “confirms that the pharmaceutical industry has targeted the United States for price increases for many years while maintaining or cutting prices in the rest of the world,” the report said. Echoing the views of Biden and many other Democratic lawmakers, the committee Democrats say such increases would be blunted if Congress gives Medicare authority to negotiate with manufacturers over how much they charge for medicines taken by people covered by the program.

It found that Medicare could have saved nearly $17 billion from 2011 through 2017 on three insulin drugs if the part of the program that provides drug benefits had been able to obtain discounts similar to those in other public insurance programs that negotiate drug prices with pharmaceutical companies. Medicaid and the Veterans Health Administration already can do that.

The report describes an array of industry practices that it says are harmful to consumers and taxpayers.

For the pain medicine Lyrica, the report says the manufacturer, Pfizer, has used patent protections and other means that fended off competition from lower-price generics. For instance, the report said, the company obtained permission from federal drug regulators to market the drug exclusively for pediatric use, generating an extra $1.6 billion.

For the 12 drugs the committee examined, the report says their manufacturers raised the prices a total of more than 250 times during the past several years.

The industry often argues that critics’ focus on the list price for drugs is misleading because many patients get discounts and pay much less. The report says the 12 drugs’ net prices that consumers actually pay also are “significantly higher” than when the medicines were introduced.

And price increases, the report finds, contributed to substantial industry profits. In 2019, the report says, the dozen drugs included in the investigation generated revenue in the United States totaling $38.5 billion.

From 2016 through 2020, it found, the chief executives of the 10 companies were paid, collectively, nearly $800 million.

As for industry claims that drugmakers need to charge enough to support innovation, the report says the investigation found “companies’ investments in [research and development] are far outpaced by revenue gains.” And some of the research that companies undertake, the report said, has the purpose of finding “enhancements” to drugs such as Humira, a medicine for Crohn’s disease, that extend protections from competition by similar but lower-priced drugs.

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