Executive summary

On February 26, the Senate Finance Committee held a full committee hearing, "Drug Pricing in America: A Prescription for Change, Part II." The hearing featured testimony from seven pharma company executives on their pricing practices. Throughout the hearing, Senators grilled the executives on rising list prices, anti-competitive practices, and company finances, among other things. The committee also sought their opinions on various pieces of legislation and regulations currently being considered. Chairman Chuck Grassley (R-IA) said pharmacy benefit managers (PBMs) would face the committee next in their drug pricing series, of which the committee has said there will be three.

Throughout the hearing, the drug company executives expressed some support for legislation aimed at curbing drug prices, many of which do not target drug makers specifically. Each of the company heads also denied withholding samples from generic manufacturers despite some being called out for the practice by the FDA, noting their support for some version of the CREATES Act, which aims to penalize such behavior. When asked about the Trump Administration's recent rule to essentially eliminate the practice of rebates in the Medicare Part D program, several of the executives noted that they would be supportive if it also applied to the commercial sector, noting that list prices would likely fall but that they must ensure there is not a competitive disadvantage by including the entire market. The executives also discussed the "powerful" negotiation tactics of PBMs and insurers, which they said incentivize higher rebates and lead to higher list prices. Regarding the Trump Administration's proposal to set Medicare Part B drug prices based on prices abroad, the group spoke to how the US system rewards innovation and often brings drugs to market faster than other countries. They also stressed the value of the free market and open competition, implying that Medicare negotiation would be less effective than the current negotiation of PBMs and insurers. In general, they expressed their support for value-based payment and increased transparency across the industry — calling out hospitals and the 340B program specifically as an area for transparency — and noted general desire to re-align incentives that result in lower out-of-pocket costs for patients, increased uptake of biosimilars, and more.

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Opening statements

Senator Chuck Grassley (R-IA): "This hearing is not about scapegoating any one group regarding high drug costs. That's why we're holding a series of bipartisan hearings on the issue. Without a doubt, drug pricing is a complex issue. But I think we should all be asking: Should it be so complex? We cannot allow anyone to hide behind the current complexities to shield the true cost of a drug. And, we shouldn't turn a blind eye to industry practices that thwart the laws and regulations designed to promote competition and generic drug entry in the market. Health and Human Services Secretary Alex Azar, FDA Commissioner Scott Gottlieb and the Federal Trade Commission have identified a number of tactics that undermine competition - like withholding samples, pay for delay, product-hopping, and rebate bundling, just to name a few. While these agencies are taking enforcement action or looking at regulatory changes, we here in Congress are exploring legislative options to deter companies from engaging in these practices that keep drug prices high for patients … We've all seen the finger pointing. 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." Full statement.

Senator Ron Wyden (D-OR): "The central argument that the committee will hear in response is that the fault is everybody else's. The health plans are at fault. The PBMs are at fault. Regulators are at fault. They always point the finger elsewhere … We'll also hear that list prices don't matter; that the true costs are complicated. But companies don't set and raise list prices for fun. Those prices are directly tied to the amount patients pay out-of-pocket at the pharmacy window. They are directly tied to what taxpayers spend on health care programs … Next, drug makers point fingers at the middlemen, Pharmacy Benefit Managers. I've said for years that PBMs are wasteful and secretive, taking their cut without proving their worth to anybody. They will have their day before this committee. But PBMs don't set list prices; manufacturers do … Next, drug makers say changes in the status quo will hurt R&D. A quick look at these companies' finances, on both sides of the balance sheet, shows that isn't the case. Revenue generated from American patients alone dwarfs what they spend on R&D worldwide … . Finally, companies say they help patients afford drugs with "coupons" or patient assistance programs. But if these programs are so widely generous, why can't drug makers instead simply lower prices across the board? Because it's just more slick branding — ploys that allow companies to maintain the status quo." Full statement.

Witness testimony

Richard A. Gonzalez, Chairman and Chief Executive Officer, AbbVie Inc.: "In general, the Medicare Part D program has worked well. Its market-based structure and utilization of formularies encourages competitive price discounts that have yielded significant savings to the government since the Part D benefit was established in 2006. However, despite these cost savings, Part D patients' out-of-pocket costs have significantly increased. Some would blame that solely on high drug prices, and we agree that price should certainly be part of the discussion. But it's also important to acknowledge that science has enabled us to advance the standard of care far beyond what was possible when the Part D benefit was designed … Due to the structure of the Part D benefit design, patients are charged out-of-pocket costs on a medicine's list price which does not reflect the market-based rebates that Medicare receives. We are encouraged by the proposed rule that would reflect manufacturer discounts in patients' Part D out-of-pocket payments. This is an important step in the right direction, but we believe more must still be done to help Part D patients … We believe it is important that discussions about access and affordability include a focus on how to alleviate Medicare Part D out-of-pocket burdens above and beyond just lowering list prices. We are prepared to step up and discuss how companies like ours can shoulder more of the burden of a patient's out-of-pocket expenses, as we do in other areas covered by commercial insurance." Full Testimony

Pascal Soriot, Executive Director and Chief Executive Officer, AstraZeneca: "Continuing to develop treatments that deliver long-term benefits to patients and the overall health of the U.S. population requires society's commitment to supporting investment in innovation through purchasing our medicines for the duration of patent protection at a responsible price that allows for the recoupment of the investment and risk associated with innovation. Second, we believe medicines are part of the solution to controlling healthcare costs. They not only improve patient outcomes and increase quality of life, but also reduce downstream costs by keeping people healthy and out of the hospital. This contribution to reducing overall healthcare costs should be considered when discussing drug pricing. Third, we recognize that we are only able to improve the lives of patients if they are able to take our medicines as prescribed. To that end, we are committed to sustaining and improving patient access and affordability. Fourth, we recognize that the current state of drug pricing in the U.S. healthcare system is not sustainable and that patients are facing increasingly high out-of-pocket costs. We believe that these issues must be addressed urgently, and we hope to be a constructive partner in finding solutions." Full Testimony

Giovanni Caforio, M.D., Chairman of the Board and Chief Executive Officer, Bristol-Myers Squibb Co.: "We are supportive of the proposed rule aimed at reforming the rebate system with a focus on what is best for patients. We need to ensure more generics are available whenever permissible under our system, and applaud Congress and the Administration's success with speeding the approval of generics. We support value-based purchasing arrangements that tie payments to value. These models can reduce costs, improve access and adherence, and contribute to better outcomes. We applaud efforts by Health and Human Services and the Committee to remove regulatory barriers and facilitate greater use of these arrangements. We do not believe the U.S. should adopt policies that stifle innovation in other countries, which could reduce a patient's access to new medicines. Outside of the U.S., reimbursement of new medicines can often take more than two years. Our Opdivo and Yervoy regimen was first approved in September 2015 to treat metastatic melanoma in the U.S. Today, six of the 16 countries included in the International Price Index proposal do not provide access to this combination, which is now considered the standard of care for this cancer. This exemplifies why Bristol-Myers Squibb does not support HHS' proposed International Price Index Model for Medicare Part B drugs." Full Testimony

Jennifer Taubert, Executive Vice President, Worldwide Chairman, Janssen Pharmaceuticals, Johnson & Johnson: "The list price of a medicine is a starting point that is ultimately reduced by the substantial discounts, rebates, and fees we provide to insurance companies, pharmacy benefit managers ("PBMs"), government programs, and others … While Medicare Part D is working for many seniors and has been effective in containing costs, we believe an out-of-pocket cap in Medicare Part D is a needed protection … As changes to Part B are contemplated, it is important to remember that Medicare currently benefits from aggressive negotiations in the commercial market through the Average Sales Price (ASP) mechanism … We support reforms to the rebate system that restructure incentives to ensure patients benefit from a competitive marketplace and see lower out-of-pocket costs … While we have negotiated several value-based contracts, current policy often limits our ability to implement creative solutions … When it comes to making more biosimilars available for patients and their physicians, competition, not government intervention, is the best approach … We support efforts to strengthen the 340B program through greater transparency and increased clarity and accountability for all stakeholders." Full Testimony

Kenneth C. Frazier, Chairman and Chief Executive Officer, Merck & Co., Inc.: "The incentives in the current system are badly misaligned. As a result, the current system of drug competition that depends on rebating is not working for patients. The growing gap between our list prices and our net prices that results from rebating has created incentives for supply chain entities to favor products with higher list prices … We urge Congress to pursue policies to encourage and support biosimilar uptake and utilization in order to realize these potential savings for the system and patients. These could include reduced cost sharing in Medicare Part B … Moving to a system where we are reimbursed for the value our medicines provide would be revolutionary. Yet there remain major regulatory and operational obstacles to value-based payment and contracting in the commercial and public markets, which we urge Congress to address … We support efforts to encourage generic competition. A version of Chairman Grassley's CREATES Act could make some needed reforms to encourage generic competition, and there are likely other policies we should consider as well to ensure there is no inappropriate gaming of the system … We would also like to work with the Committee to find ways to end the price gouging pursued by those who jack up the prices of off-patent drugs that have no competition." Full Testimony

Albert Bourla, DVM, Ph.D., Chief Executive Officer, Pfizer: "The way to alleviate sticker shock at the pharmacy counter is by changing the incentives in the supply chain so that more of the $150 billion in negotiated rebates and discounts actually reach patients. This can be accomplished by applying the discounts paid by the pharmaceutical manufacturer to the price actually paid by patients at the pharmacy … Pfizer supports the move to value-based healthcare and is prepared to stand behind the benefits that our medicines deliver to patients and to the United States healthcare system … We commit to working with the Committee on meaningful policy solutions that remove the burdens seniors face in paying for their medicines, and we believe an important first step is capping the out-of-pocket costs seniors experience in the Medicare drug program … Unfortunately, adverse incentives that favor higher-cost originator biologics are keeping biosimilars from reaching patients. In many cases, payers decline to include lower-cost biosimilars or generics in their formularies because they would risk losing the rebates they can get by covering higher-cost medicines." Full Testimony

Olivier Brandicourt, M.D., Chief Executive Office, Sanofi: "Based on our experience, targeting list price controls alone will not be sufficient to address patient access and affordability. That is why the solution to drug pricing must include protections for patients, tying responsible pricing to both access and affordability for patients … The U.S. should continue to maintain a strong ecosystem for innovation. As such, any policy proposals should strictly avoid directly and artificially controlling the price of medicines, either through price controls set by the federal government, or worse, outsourcing that decision to foreign governments … Changes to the pricing system must be holistic, and the majority of benefits should accrue to patients … If policies are enacted that solely target the list price of medicines without these commonsense patient protections, our shared goal of lowering drug costs — for both government and patients while maintaining the engine of innovation in the United States to bring new innovative medicines to patients will not be fully achieved. To appropriately accomplish this objective, Sanofi is willing to trade price for access and affordability and share accountability for offsetting the financial impact on the Medicare programs." Full Testimony

Q&A

Sen. Chuck Grassley (R-IA) said he is thankful of those companies who are supportive of the CREATES Act and noted he also wants support for the Right Rebate Act. He spoke about their investigation into Gilead's pricing for their Hepatitis C drug and noted that they considered the impact of a public outcry, asking if the companies consider the risk of negative public opinion. They all said yes, among other factors, and agreed they also consider the potential for a Congressional inquiry. Sen. Grassley asked about support for the Trump Administration's recent rebate rule and if they would commit to lowering prices should it be finalized. Mr. Gonzalez said they are supportive of the rule and shifting the discount to patients at the point of sale. Mr. Soriot said they would definitely reduce list prices if it also applied to the commercial sector. Others agreed they would expect prices to drop but would need to see the final regulation and ensure other fees are not added but that rebates are moved to patients.

Sen. Ron Wyden (D-OR) asked if starting prices are set by the companies. Mr. Bourla said they are set through negotiation, with co-insurance based on list prices. Sen. Wyden said they are stonewalling on the key issue of list prices and everything else they're talking about is "window dressings." He asked Mr. Gonzalez if they make a profit on drugs sold abroad, to which he said yes, and Sen. Wyden asked why it is not considered price gouging the American consumer when prices are much higher here. Mr. Gonzalez noted the investment in R&D and Sen. Wyden said that global R&D is far less than the revenue made just in the US. Mr. Gonzalez said that at $5.2 billion for R&D versus $4.6 billion in earnings they are almost equivalent. Later in the hearing, Sen. Wyden asked about Mr. Gonzalez's bonus, which he said is tied to the performance of Humira, requesting an answer in writing on if his bonus would drop with lower prices and if he would agree to reduce list prices by the rebate amount if they are removed.

Sen. Pat Roberts (R-KS) asked what issues keep them up at night in terms of access and cost. Mr. Brandicourt said the pipeline of new innovative products is necessary to alleviate disease burden. Mr. Bourla said breakthroughs are necessary to save patients' lives. Mr. Frazier said a viable market to allow people to put a lot of money at risk to find solutions to pressing problems like Alzheimer's. Ms. Taubert noted that it is harder and harder to go after new diseases and they need investment in innovation to solve them. Mr. Caforio said patients whose cancer still needs to be treated and ensuring all have access. Mr. Soriot said ensuring they have the best science and scientists to develop medicines that can be part of the solution. Mr. Gonzalez said changing the lives of patients by solving tough diseases.

Sen. Debbie Stabenow (D-MI) discussed how all of the companies benefit from taxpayer-funded NIH research and how they can write off their R&D, yet that they spend more money on advertising. She said people feel like they should share in their investment but instead are met with unaffordable drug prices. She asked if Humira, the world's bestselling drug, has gotten any better since the initial patent expiration in 2013, adding that they filed over 100 additional patents and the drug now costs $50,000 a year. Mr. Gonzalez said they have learned more about its use across disease states, but that the drug is essentially the same. When asked why prices abroad are 80% lower, he added that R&D plays a big role and noted that licenses biosimilar players will enter in 2023. Sen. Stabenow argued that they charge more simply because they can.

Sen. Maria Cantwell (D-WA) asked about the idea of allowing states to negotiate on behalf of their population for health care plans, like the basic health plan in New York, similar to how the VA can negotiate for drugs. Mr. Frazier said that might work if you're willing to go into an environment where it is imposed, adding that governments outside the US often talk about negotiation when really they are imposing those prices. Sen. Cantwell said that the question is if they should allow those market forces to negotiate, adding that if they can't even agree that basic market functions that allow people to buy in bulk and get a discount is good for consumers, she's not sure they will agree on anything. Mr. Gonzalez said there are two affordability issues — to the system and to the patient — and said that both have challenges but that the patient affordability is out of hand.

Sen. John Cornyn (R-TX) said he supports the patent system but noted that Humira has 247 patents and some don't expire until 2034 although Humira was first sold in 2003. He asked if they intend to have an exclusive monopoly for 32 years. Mr. Gonzalez said they have 136 patents and 247 patent applications, including for treating new conditions. He added that they don't block biosimilars from making the product and said the patents described do not give them the exclusive rights to produce the drug, saying they have given nearly every biosimilar player a license. When asked about blocking Amgen, he said they have a license to produce.

Sen. Robert Menedez (D-NJ) said New Jersey is at the forefront of innovation but costs are much too high for their citizens, adding that it's time to be proactive within the industry or else policymakers will be proactive on their behalf. He asked for a ballpark number on how much each company used of their tax breaks to lower the cost of prescription drugs. Mr. Gonzalez said they used it to invest and stimulate the economy. Mr. Soriot said they did so in a roundabout way. Mr. Caforio said they did. Ms. Taubert said they invested in R&D. Mr. Frazier said their effective tax rate actually went up. Mr. Bourla said their prices did go down. Mr. Brandicourt said they didn't get much due to their headquarters in Paris. Sen. Menedez then asked if the companies restrict access to or block the purchase of samples at full market price. They all said they do not and Mr. Caforio, Bourla, and Brandicourt said they support the CREATES Act.

Sen. Thomas Carper (D-DE) asked the witnesses to consider three things: eliminating rebates to PBMs, value-based arrangements, and increasing transparency industry wide. Mr. Gonzalez said he supports providing rebates to patients, value-based arrangements, and industry wide transparency that includes 340B hospitals. Mr. Soriot said he supports all three and said if rebates were removed in both Part D and the commercial sector it would lead to reduced list prices. Mr. Caforio said he supports all three along with developing the biosimilar market. Ms. Taubert and Frazier also said they support all three. Mr. Brandicourt said he supports them if they are benefiting the patient.

Sen. John Thune (R-SD) asked how they would set list prices if the rebate rule was finalized. Mr. Frazier said assuming it applied to both the commercial and Medicare sector, they would lower list prices, however they would need to change all the incentives to ensure no one is at a disadvantage. Mr. Bourla said if rebates went directly through to the patient list prices would not be relevant, adding that he doesn't like a bifurcated system. Regarding paying for value, Mr. Bourla said they have a common goal and that paying for clinical outcomes is a good way to align incentives. Mr. Soriot gave an example where they contracted with a hospital to reduce patients with heart attacks, ensuring providers would follow up with patients to take the medicine. Mr. Gonzalez said strong market competition is necessary for it to work.

Sen. Johnny Isakson (R-GA) asked who sets the rebate and discount. Mr. Gonzalez said they negotiate with payers and PBMs and that there is a massive difference between the list and realized prices. Ms. Taubert said in 2018 their net prices declined 8.6%, noting that intermediaries like PBMs and insurers are very powerful. Mr. Brandicourt said they need to get rid of rewarding based on list prices.

Sen. Ben Cardin (D-MD) asked about the Trump Administration's international drug pricing proposal and moving to a process where Americans pay a similar price to that paid abroad. Mr. Caforio said sometimes other countries do not introduce drugs as quickly and that they continue to reward innovation in the US. When asked about allowing the Medicare market to negotiate better prices, Ms. Taubert said that open competition and the free market is the best way, arguing that PBMs and insurers are extraordinarily effective.

Sen. Maggie Hassan (D-NH) asked about a controversy regarding Jannsen's use of "pseudo addiction" in opioid sales practices, which alleges that certain patients present signs of addiction because they were prescribed insufficient doses of opioids. Ms. Taubert said she was not familiar with those practices and that less than 1% of their product are opioids. She added that everything she knows about their previous opioid marketing practices were appropriate and responsible and said they have a leadership position to take in addressing the epidemic.

Sen. James Lankford (R-OK) asked how they break down the practice of paying PBMs based on their negotiating skills for rebates and what to do about the underuse of biosimilars. Mr. Frazier said they need to educate physicians on biosimilars. When asked about Part B payment, Dr. Frazier agreed they have to look at the incentives as it relates to ASP plus 6. Mr. Bourla added that biosimilar uptake is much larger in closed systems like Kaiser, saying it is 73% versus around 5% in closed systems due to the integration of the health system. He said they should break the rebate trap that creates these disincentives. Mr. Brandicourt added that insulin biosimilars have significant market share.

Sen. Bill Cassidy (R-LA) asked about Duexis, which is a combination of over the counter generic ibuprofen and Pepcid, but that Duexis has a list price of over $2,400 a month. He said that is an example of how Medicare has a limited ability to negotiate on marginal value. Ms. Taubert said she agrees that makes no sense and is supportive of value-based pricing but doesn't believe the government would be an effective negotiator. When asked about France's Committee on Transparency, Mr. Brandicourt said the French system is not a good benchmark because some drugs are not put on the market due to pricing. Regarding the six protected classes in Medicare, Mr. Frazier said he believes there are ways of lowering prices without affecting those protected classes. Mr. Bourla said the administration should try through trade agreements to protect American innovation.

Sen. Michael Bennet (D-CO) said while there is nearly $500 billion in taxpayer spending on prescription drugs, many in his state cannot afford to refill a prescription. Mr. Gonzalez said they all agree they shouldn't go without drugs and said his company does a lot to help people afford them such as substantial rebates and discounts. He added that they would like to do a lot more but face significant barriers.

Sen. Sheldon Whitehouse (D-RI) asked about off-patent monopolies, such as non-pharma entrants that do no R&D and engage in price gouging. The witnesses all agreed it is an issue. Sen. Whitehouse urged them to tell their lobbyists to help, not hinder, their efforts to explore those issues and solve that problem. Mr. Frazier said he couldn't agree more.

Sen. Sherrod Brown (D-OH) asked if they all benefit from taxpayer research, if no other nation invests more in basic research, if the US allows the longest exclusivity period for biologics, if Medicare cannot negotiate, if marketing is subsidized, if they have the highest prices in the world, and if drug manufactures set list prices.Everyone agreed this was the case.

Sen. Cortez-Masto (D-NV) asked if they invest more in R&D than marketing and administration. All agreed they do not, but said they invest more in R&D than marketing alone. When asked about selling authorized generics, Mr. Frazier said that they allowed a third party to bring a generic to market, but it all ties back to the issue of transparency and patients knowing their choices. When asked about advance justification for price hikes legislation, most said they would support it or already do it while Ms. Taubert said it would be problematic.

Sen. Steve Daines (R-MT) asked who pays the list price. Mr. Frazier said it is a small percentage of people who can least afford it. Regarding list price negotiations, he added that the goal used to be having the lowest copay but not it's the bigger rebate, which is bad for the patient. Mr. Brandicourt added that they negotiate for a preferred position on the formulary but it doesn't mean a good price for the patient. When asked about withholding samples from generic manufacturers, they all said they do not do that and support the CREATES Act.

Sen. Todd Young (R-IN) asked about Medicaid best price. Mr. Gonzalez said it doesn't necessarily encourage higher list prices but that the rebates are a bigger driver. Mr. Frazier said it is a barrier to value-based pricing. Mr. Caforio added that they need greater flexibility for value-based payment. When asked about the international pricing index, Mr. Frazier said they do all they can regarding freeloading but it's difficult to walk away when a price is set. Mr. Soriot added that the US has access to medicines much earlier.

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