By Erin M. Hussey, Esq.
Few issues gain bipartisan support, but the high cost of prescription drug prices is one of them. This was evident throughout the three-part Senate Finance Committee Hearings titled “Drug Pricing in America: A Prescription for Change”. The second hearing held on February 26, 2019, involved the questioning of executives from seven pharmaceutical companies, including AbbVie, Inc., Bristol-Myers Squibb Co., Johnson & Johnson (Janssen Pharmaceuticals), Merck & Co., Pfizer Inc., and Sanofi. The third hearing held on April 9, 2019, involved the questioning of representatives from five pharmacy benefit managers (PBMs), including Cigna, CVS Caremark, UnitedHealthcare’s OptumRx, Humana and Prime Therapeutics.
The goal of these hearings was to get at the root causes keeping the United States’ prescription drug prices so high. Both hearings shed light on this issue, but for the purposes of this article, the following is an overview of the problems addressed at the second hearing held February 26th. At this particular hearing, many senators expressed frustration at their inability to explain the high cost of drugs to their constituents, since the prescription drug industry is so complex. The senators attempted to break down a convoluted system of list prices, net prices, patents, rebates, and discounts, as well as the many actors at play including manufacturers, wholesalers, retailers, PBMs, health plans, and most importantly, the consumers.
High Drug Prices in the United States
Sen. Debbie Stabenow (D-Michigan) directed the following statement at the seven executives: “I think that you charge more [in the United States] because you can, and American taxpayers are subsidizing all of you to be able to have incredibly high profits, the fastest growing part of the healthcare system, and I think the people in Michigan and across the country deserve better, they need to be able to afford their medicine and not have to go to another country to get it.”
Sen. Ron Wyden (D-Oregon) also noted drug prices are 40 percent higher, on average, than in other developed countries. For example, Wyden detailed that AbbVie makes billions in profit outside the United States, where they sell their prescription drugs at a lower cost, so they should be able to sell them at similar prices in the United States and still make a profit. The CEO of AbbVie, Richard Gonzalez, insisted that the fundamental issue is with the current system, which supports their research and development (“R & D”) model. He argued that if the United States were to collapse to the lower end of that pricing model, then AbbVie would not be able to invest in the level of R & D it does today. Wyden was quick to counter that response by noting that AbbVie’s R & D costs were less than AbbVie’s revenue in the United States, and “that’s why people are so angry.”
Where is the Money Going?
All of the pharmaceutical executives discussed their large investments in R&D. In Sen. Chuck Grassley’s (R-Iowa) opening statement, he noted there needs to be a balance between incentivizing innovation and R&D, while keeping drug prices affordable.
However, the CEO of Merck & Co., Inc., Kenneth Frazier, explained his company was making strides in innovation toward a new Alzheimer’s therapy, but development ended because it was not successful. His example revealed that even when a measurable investment goes into R&D, such as this project for a beneficial therapy, that project may not go as planned. Therefore, money needs to be left over for the R&D that will prove successful. Most of the senators agreed with the importance of investing in R&D in order to make strides in innovation. Still, the problem the senators have is that even when the innovation is successful, it will make no difference if consumers cannot afford it.
Problems and Solutions
The senators’ major concerns were with list prices of drugs, but the executives insisted that in order for list prices to come down, it would first involve a solution to the rebate system. The CEO of Sanofi, Olivier Brandicourt, M.D., noted that list prices cannot be lowered “independently of major reform,” because Sanofi would lose formulary placement if they were lowering list prices “in isolation.” Sen. Wyden persisted about lowering list prices. He asked if rebates go away, would these companies respond within ten days as to whether they would support a black-letter law requiring them to reduce list prices by the amount of the rebate.
Rebates are payments from the manufacturer to the health plan in order to receive preference on their formulary.
As a result, the consumer benefits from lower premiums.
The executives suggested that while the rebate system keeps them from lowering their list price, the blame rests with PBMs. PBMs negotiate rebates on behalf of insurers and employers and keep a portion. The Jansen Pharmaceuticals executive, Jennifer Taubert, emphasized that PBMs have strong negotiating power.
Besides rebates, the executives agreed there is an issue with high out-of-pocket (OOP) costs for prescription drugs. Gonzalez, explained that even if the list price is reduced, the OOP cost still remains too high for commercial and Medicare Part D consumers. For example, Frazier detailed that even when they cut a list price dramatically, the OOP cost is still unaffordable. As such, the CEO from AstraZeneca, Pascal Soriot, noted that if the current system cannot be changed then, at the very least, there should be a cap on OOP costs for Medicare patients.
Lastly, the executives expressed a need for value-based agreements and bio-similars. Soriot, Dr. Giovanni Caforio (CEO of Bristol-Myers Squibb), and Dr. Albert Bourla (CEO of Pfizer) all detailed their support for value-based agreements in their opening remarks.
For example, Dr. Bourla detailed that Pfizer should get paid based on the number of heart attacks prevented rather than the number of medications sold. He also detailed the need to knock down barriers for bio-similar programs. He explained that insurance companies decline bio-similars in their formularies because they risk losing their rebates. Frazier also detailed the importance of educating physicians and health care providers about the value of bio-similars.
These hearings appear to be aimed at reforming the prescription drug industry through legislation. For example, Sen. Wyden has introduced a few relevant bills, including the following:
The Stopping the Pharmaceutical Industry from Keeping Drugs Expensive (SPIKE) Act would require Health and Human Services (HHS) to notify drug manufacturers when a drug’s price goes beyond certain benchmarks and require the manufacturer to provide justification to HHS for those price increases.
The Creating Transparency to Have Drug Rebates Unlocked (C-THRU) Act would require PBMs to make certain information available to the public, such as rebates and discounts and the proportion of what is passed on to the health plan.
The Reducing Existing Costs Associated with Pharmaceuticals for Seniors (RxCAP) Act would eliminate cost-sharing above the Medicare Part D OOP threshold.
The issue of prescription drug prices has gained a lot of traction this year, and given recent events, it is not slowing down any time soon.
Erin joined The Phia Group, LLC as an attorney in 2017. She focuses on a variety of healthcare issues facing employee benefit plans and their administrators. She provides general consultative advice on matters involving ERISA, ACA, HIPAA, COBRA, FMLA and other regulatory matters. Prior to working at The Phia Group, she worked as an attorney practicing in the area of workers’ compensation where she represented insurance companies at the Department of Industrial Accidents.
Erin earned her B.A. from the University of New Hampshire, graduating magna cum laude, and her J.D. from Suffolk University Law School, graduating cum laude. While attending Suffolk Law, Erin interned at the Boston Municipal Court (Dorchester Division) and the United Nations in New York City. She also worked as a law clerk for a personal injury law firm and volunteered at a court service center.