Tuesday, February 26th saw the highly anticipated Drug Pricing Hearing, as CEOs from seven different leading pharmaceutical companies presented before the Senate Finance Committee. These witnesses represented AbbVie, AstraZeneca, Bristol-Myers Squibb Co, Johnson & Johnson, Merck, Pfizer, and Sanofi and were called in to explain their drug pricing policies, as lawmakers criticized the process.
What You Missed
Pharmaceutical executives acknowledged that their prices are high for many patients, but they highlighted the insurance industry, government, and middlemen, known as pharmacy benefit managers, as causative agents. They each also briefly acknowledged that they have some role to play in lowering drug prices and out-of-pocket costs, but they defended their industry by turning the spotlight on their multibillion-dollar investments in research. These executives explained that the list prices they set for drugs are not what they are actually paid by insurance companies or PBMs. Read a full summary of the hearing here.
Yes or No
Many of the questions asked during the hearing required simple ‘yes’ or ‘no’ answers, with further discussion prevented by the senators. These parts of the hearing were generally unproductive, as the healthcare system is a complex entity with many moving pieces. Yes or no questions simply do not allow for adequate explanation from the CEOs and Senators.
Tax Break
Companies were asked several times about the usage of their tax breaks from the last Congress. Some Senators wanted to prove a point- that the tax law was largely unhelpful to regular Americans- and others wanted to know how much of the tax break went to lowering actual drug list price.
The Tax Cuts and Jobs Act of 2017 was approved by the House Ways and Means Committee on November 9, 2017 and was passed in December 2017 by the Republican-led Congress as the largest piece of tax reform in decades. The TCJA had a wide reach, including introducing a flat corporate tax rate of 21% to pharmacy businesses, a wide variety of credit and deductions, increased expensing, saving pharmaceutical companies billions. The Act also reduced tax rates for other businesses and individuals, simplified personal tax, and repealed the individual mandate of the Affordable Care Act.
Patent System
Some of the Senators (Cornyn-R, Texas) brought up the idea of reforming the patent system so that drug formulas cannot continue to be re-patented in a seemingly endless loop. Gonzalez discussed how patents on Humira (AbbVie), for instance, are not simply on the formula of the drug and how they license the formula of the drug so other companies can produce it as well. Currently, patents protect drugs from copycats for 20 years upon the invention of the drug. This timespan includes the time spent in FDA trials, a process that takes an average of 9 years.
A patent is not the only option for drug producers though. For new drugs, exclusivity can be granted as a period of time in which a brand-name drug is protected from generic competition and is offered exclusive marketing rights. Exclusivity can vary from 6 months to 7 years with additional extension possibilities, and attaches upon the approval of the drug product. Patents and exclusivity may or may not run concurrently, but the exclusivity clause will not add additional time to the patent life. However, current patent law allows drug companies to file patent after patent to extend the life of their exclusivity, and generic drugs can be challenged in court. Litigation via these two channels can cause the production of generics to be delayed by years. Click to learn more about patents and exclusivity from the FDA.
Rebate Reform
Some of the presenting pharmaceutical executives stated that they support the administrative proposal for rebate reform, which would change the current system in which drug prices are set using secret rebates negotiated by PBMs. “The change would make those rebates illegal and force pharmacy benefit managers to instead negotiate discounts upfront so that people will get the discounts at the pharmacy counter even if they haven’t yet met their deductible.”
International Pricing Index
Many Senators, especially Cardin (D- Maryland) and Cassidy (R- Louisiana), brought up the International Pricing Index. The IPI was proposed by the administration at the end of last year. It aims to tie American drug prices with international prices by setting a Target Price driven by the international pricing index, in hopes to lower the amount Medicare, and patients, pay for drugs. According to the Centers for Medicare & Medicaid Services (CMS), “the IPI Model would test whether increasing competition for private-sector vendors to negotiate drug prices, and aligning Medicare payments for drugs with prices that are paid in foreign countries, improves beneficiary access and quality of care while reducing expenditures.” The IPI is projected to start in Spring 2020 and save American taxpayers and patients $17.2 billion over five years.
Wyden’s Pledge
Wyden (D- Oregon) wanted each pharmaceutical executive to pledge that if rebates were eliminated from the market, the savings would go towards lowering prices. The companies have ten days to send an answer to his office, and several of the executives stated that they would have no problem signing such a pledge.
The Takeaway
Follow up from this hearing is key and Grassley (R-Iowa) promised he would have additional hearings on this issue. Himself and Wyden (D-Oregon) have stated the companies would be asked to present again on Capital Hill for further hearings.