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February 27, 2019

Pharma execs just defended their practices in a Senate hearing. Here's who they blame for high drug prices.

Daily Briefing

    Pharmaceutical company executives during a Senate Finance Committee hearing on Tuesday offered some ideas for lowering prescription drug prices insurers and consumers pay, but did not commit to lowering the actual list prices of their products.

    Learn 5 ways to control the flow of drug expenditures

    Hearing details

    Tuesday's hearing was the second the Senate Finance Committee has held on prescription drug prices since launching an investigation into rising U.S. drug prices last month. Executives from seven pharmaceutical companies testified before the committee at Tuesday's hearing. Those executives were:

    • AbbVie CEO Richard Gonzalez;
    • AstraZeneca CEO Pascal Soriot;
    • Bristol-Myers Squibb CEO Giovanni Caforio;
    • Johnson & Johnson's Janssen unit Executive VP Jennifer Taubert;
    • Merck CEO Ken Frazier;
    • Pfizer CEO Albert Bourla; and
    • Sanofi CEO Olivier Brandicourt.

    Pharma execs pass the buck on high drug prices

    The executives largely pinned blame for high drug prices on pharmacy benefits managers (PBMs) and their rebate systems. According to CNBC, the executives criticized PBMs for pocketing rebates instead of passing the savings along to consumers.

    Pfizer's Bourla in prepared testimony said, "Today's current drug rebate system is good for two things: driving up both drug list prices and consumer out-of-pocket costs."

    But lawmakers expressed frustration with different parts of the health care industry passing blame for high prescription drug prices. Committee Chair Chuck Grassley (R-Iowa) in prepared testimony said, "We've all seen the finger pointing," adding, "Every link in the supply chain has gotten skilled at that. But, like most Americans, I'm sick and tired of the blame game. It's time for solutions."

    Execs suggest reforms to bring down drug prices—but don't commit to lower prices themselves

    The pharmaceutical company executives did present some ideas for lowering prescription drug prices—though they did not commit to taking action to reduce drug prices themselves.

    For instance, the executives from AbbVie, AstraZeneca, Bristol Myers-Squibb, and Pfizer expressed their support for a Trump administration proposal that would revise federal protections that currently allow drug manufacturers to pay rebates to Medicare Part D plans, Medicaid managed care plans, and PBMs. Specifically, the proposed rule would alter safe harbor protections under the federal Anti-Kickback Statute so that they no longer allow drugmakers to pay rebates tied to a percentage of a drug's list price to Medicare Part D plans, Medicaid managed care plans, and PBMs. Instead, HHS proposed two new safe harbor provisions:

    • One that would allow PBMs and insurers to negotiate rebates with drugmakers as long as those rebates are shared directly with patients at the point of sale; and
    • Another that would allow PBMs to receive fixed fees for services provided on behalf of insurers.

    According to CNBC, the proposed rule would result in an estimated $29 billion in rebates being passed on to consumers.

    Executives from Johnson & Johnson, Merck, and Sanofi said they would support reforming the entire rebate system—and some executives said they would like to bar the use of rebates in the commercial sector altogether.

    AstraZeneca's Soriot said, "If rebates are removed from the commercial sector, we would definitely lower list prices."

    According to the New York Times, other executives similarly said they would lower prices for consumers if Congress banned rebates.

    All of the executives indicated their support for the CREATES Act, which aims to prevent brand-name drugmakers from hampering generic competition by refusing to grant generic drugmakers access to drug samples needed to develop generic drugs—even though FDA has accused some of the companies of blocking generic drugmakers from accessing samples of their drugs, Kaiser Health News reports.

    In addition, some of the executives recommended:

    • Establishing an annual or monthly cap on the amount Medicare beneficiaries must pay out of pocket for drugs; 
    • Changing the reimbursement structure for drugs covered under Medicare Part B;
    • Increasing price transparency; and
    • Shifting toward a value-based payment system.

    However, the pharmaceutical executives said they oppose the administration's proposed Medicare Part B drug pricing model, which aims to align Medicare payments for certain Part B drugs with prices paid in other countries. The executives argued that the proposal would implement price controls in the United States, and said coverage for costly drugs in other countries is sometimes delayed or denied, the Times reports.

    But the executives did not commit to lowering the list prices of their products. Instead, they defended their current business and pricing strategies, noting that drug's list prices do not reflect what patients typically pay for the drugs.

    Ultimately, Sen. Ron Wyden (D-Ore.), the ranking Democrat on the committee, said, "I've heard a lot of happy talk this morning. … But what people are taking away from this hearing … well, no firm commitments have been made to lower list prices" (LaVito/Lovelace, CNBC, 2/26; Facher, STAT News, 2/26; Alltucker, USA Today, 2/26; Luthi, Modern Healthcare, 2/26; Baker, "Vitals," Axios, 2/27; Huetteman/Hancock, Kaiser Health News, 2/26; Pear, New York Times, 2/26). 

    Learn 5 ways to control the flow of drug expenditures

    Prescription drug expenditures are the fastest growing component of health care spending. And while reducing unwarranted prescribing variation is the single biggest improvement opportunity, there are several other near-term chances to reduce spending and grow revenues.

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