In advance of an anticipated Senate hearing on drug prices, President Donald Trump once again denounced drug companies as “getting away with murder.” The first time he did so, using the same phrase just before his inauguration, the markets shuddered. He also said at the time that “we’re going to start bidding,” a reference to Medicare’s inability to negotiate drug prices.
This time, the markets shrugged. As of Tuesday afternoon, biotech indices are up slightly from the week’s start. Trump made no mention of letting Medicare negotiate with drug companies, or allowing drug importation from Canada and other countries, both of which he pledged to enact when campaigning for president.
Those issues came up, however, when a Senate committee held a long-anticipated hearing Tuesday on high drug prices, inviting lobbyists from five health-related trade groups to speak. It was a reboot from several months ago, when senators used a similar hearing instead to weigh in on the Obamacare repeal efforts.
[The committee’s chair Lamar Alexander (R-TN) and ranking Democrat Patty Murray (D-WA) announced right after the hearing that they have struck a short-term deal to shore up healthcare insurance markets.]
Alexander immediately asked a provocative and important question: whether drug rebates were actually necessary. The opaque tangle of discounts and other price changes that pass between drug makers, health plans, and intermediaries are a big part of the confusion and frustration around prices. “Where the money goes in drugs is more complicated” than health insurance, said Alexander (pictured). “I’ve yet to figure out where it goes.”
When asked if they would want a simpler structure that eliminated rebates, estimated to total $100 billion a year, and lowered the list price of drugs, the five lobbyists gave a wide range of answers. “We’d be open to that,” said Mark Merritt, the CEO of the Pharmaceutical Care Management Association, which represents pharmacy benefit managers (PBMs). PBMs negotiate deals—including rebates—and serve as drug-access gatekeepers on behalf of health plans and employers.
When asked if the drug industry would like to eliminate rebates, Lori Reilly, an executive vice president at the Pharmaceutical Research and Manufacturers of America (PhRMA), said, “That’s one option to have a lower list price.” But she deflected the attention back to Merritt’s group and others. PBMs and insurers like rebates because “they get a big check at end of the day,” Reilly said.
Thomas Menighan, CEO of the American Pharmacists Association, admitted he didn’t know why rebates were necessary. “They’re often used to drive market share, and that’s not necessarily to the benefit of the patient,” he said.
For those craving fireworks today, there was Elizabeth Warren (D-MA) lambasting PhRMA’s Reilly. Warren said the drug industry has hamstrung efforts to import drugs from lower-cost countries such as Canada and to let Medicare negotiate drug prices. Reilly called importation and negotiation “price controls.” Warren, cutting her off, argued that they were, in fact, market-based solutions, “not government mandates.” (All five witnesses answered no when asked if drug importation was a good idea.)
Reilly bore the brunt of several senators’ testy questions. Sen. Maggie Hassan (D-NH) prodded her about Allergan’s recent deal to shield its eye-medicine patents from generic competition by assigning them to a Native American tribe. Hassan noted that PhRMA recently changed its membership criteria to account for heightened R&D spending (read: No Martin Shkrelis or Valeant Pharmaceuticals allowed), booting 22 members in the process.
The senator asked Reilly, who is head of membership, if Allergan’s actions were consistent with the new guidelines. Reilly didn’t answer directly, but conceded that the patent office’s process that allowed Allergan’s sleight of hand needs “significant reform.”
A federal judge struck down Allergan’s patents Monday. The company said it would appeal. Allergan’s behavior casts a shadow over its previous pledge, made by CEO Brent Saunders last year, to follow a “social contract” of responsible pricing practices.
Among the stabs at policy discussion, Sen. Tammy Baldwin (D-WI) urged passage of a bill she co-sponsored with Sen. John McCain (R-AZ) that would require drug companies to explain large price hikes. California last week passed its own drug-price transparency law.
Two senators whose votes have proven key to the fate of other major legislation, Susan Collins (R-ME) and Lisa Murkowski (R-AK), also talked today about the need for transparency.
Sen. Todd Young (R-IN) said he was encouraged by early attempts to create performance-based drug contracts and asked the speakers what Congress should do to encourage them. One recent example of such a contract: Novartis (NYSE: [[ticker:NVS]]) promised it would not charge for its $475,000 cell therapy for pediatric leukemia if patients did not respond within one month. The contract does not make concessions, however, for treatments that work well initially but fade or fail after several months.
Amid the frustration, the scolding, and the forays into policy, there were a few moments of levity. Alexander had to hand off the chair twice to go vote on other matters. The first time, Collins, who recently squelched speculation she would leave the Senate to run for Maine’s governorship, took over and smiled. “I love having the gavel in my hand,” she said.
Near the end, Sen. Al Franken (D-MN), a Saturday Night Live alumnus, took over the gavel. He had run back to the hearing from elsewhere and, out of breath, had trouble asking his first question. “Actually I didn’t run here,” he said, panting. “This is just an exciting hearing.”
