When a lawmaker compares the way your company protects its profits to how Gollum protects his ring, you know it’s not going to be a fun four hours.
That is how Senator Ron Wyden of Oregon on Tuesday referred to the way the drugmaker AbbVie protects the exclusivity of its prize drug, Humira. The comment foreshadowed the way the Senate Finance Committee would grill seven pharmaceutical-company CEOs about a topic that has stirred bipartisan ire: Why, exactly, are drug prices so high?
To name just one example, the price of insulin, which was invented in the 1920s, doubled between 2012 and 2016. The price of the insulin drug Lantus rose 49 percent in 2014 alone. The struggle of patients to afford treatments such as EpiPens and hepatitis C medications has been well publicized.
The senators accused the executives of setting list prices arbitrarily and without regard to how they affect American consumers. As expected, the CEOs passed the buck to insurers and pharmacy-benefit managers—a kind of middleman that negotiates drug rates and collects rebates, which the drug companies say drives up prices.
But some key moments revealed how even pharmaceutical companies acknowledge that the current system is broken. The senators’ pointed yes-or-no questions laid bare the true pharmaceutical dysfunction that Americans currently put up with:
- Senator Chuck Grassley of Iowa asked the executives whether they consider “negative public opinion” when they set drug prices, and all of them said yes. While not exactly outrageous, this suggests that the price of drugs is not purely a function of administrative costs and research and development, as much of the public might believe. More cynically, it implies that if no one got upset about drug prices, companies would be more eager to raise them even higher.
- Wyden pointed out that drug prices in the U.S. are higher than elsewhere in the world, which is true. So he asked the executives whether their companies still make a profit on the drugs they sell in, say, France or Germany. Richard Gonzalez, the CEO of AbbVie, admitted that they do. Wyden then accused him of “gouging” the American consumer. Gonzalez admitted that the U.S. has “some of the highest prices in the world,” but that “our system is built around a variety of pricing, around the world, but that overall system supports our R&D model.” He echoed this point later, when he admitted that American families pay more for the drug Humira than European families do because “Humira plays an important role in AbbVie’s overall funding of R&D.” In other words, he’s claiming that if drugs were as cheap in the U.S. as they are elsewhere, pharmaceutical companies wouldn’t be able to afford to develop new drugs. That assertion is highly contested, but it’s interesting to hear a pharma exec admit that Americans paying more for their drugs is baked into the system.
- If Humira were its own company, the drug would be among the fortune 500 companies all by itself. This was a little factoid lobbed by Senator Debbie Stabenow of Michigan. (And appears to be from this Axios story, which reports that, because of the $38,000 drug’s $18.4 billion revenue, “if Humira were a standalone company, it would be larger than many Fortune 500 conglomerates, such as General Mills, Halliburton, or Xerox.”)
- Senator Maggie Hassan of New Hampshire brought up pseudo-addiction, and Jennifer Taubert, from Janssen Pharmaceuticals, didn’t know what it was. Pseudo-addiction was a bogus idea promoted by opioid manufacturers in the early days of OxyContin that suggested that if a patient was showing signs of addiction—such as demanding higher doses from more doctors—it might be a sign that they actually aren’t getting enough opioids. Janssen allegedly promoted this idea, and it’s currently being sued by New Jersey for doing so. When asked about it, Taubert demurred, saying opioids represent just 1 percent of the company’s products. But with the opioid epidemic so severe right now, it’s not a good look for a pharmaceutical company to not have this top of mind. (Janssen previously has called claims that they promoted the idea of pseudo-addiction “unfounded,” and said it has always acted appropriately when it comes to opioids.)
- Senator Sherrod Brown of Ohio asked whether it’s true that no other nation than the U.S. invests more taxpayer dollars in research that benefits the pharmaceutical industry, and each executive said yes. Brown’s point—and that of several other senators—was likely that American taxpayers subsidize research and development the most, then get hosed on drug prices.
- In response to a question from Senator Steve Daines of Montana, Kenneth Frazier, from Merck, admitted that patients with no insurance are sometimes the ones who pay the list price. “The people who can least afford it are paying the most,” Frazier said. “The list prices work against the patient.” Merck blames this on the rebates they pay to PBMs and insurers, so it’s not exactly an admission that they’ve raised prices too high. But it does seem to acknowledge a problem with the system.
- “The government has to step up and change the rules.” This, from AstraZeneca CEO Pascal Soriot, is a rare call for more government regulation from a giant company. It is also, however, throwing the ball back into the legislators’ court.