Drug industry executives, facing scrutiny from the Senate, indicated a willingness to lower the list prices of their products — if Congress eliminates product rebates and makes other changes to the way money flows through the supply chain.
Biopharmaceutical companies pay rebates to pharmacy benefit managers (PBMs), who figure the value of those rebates into formulary placement decisions. Rebates are generally calculated as a percentage of a drug product’s list price, according to the Pharmaceutical Research and Manufacturers of America (PhRMA).
PhRMA contends that the linkage between rebates and list prices encourages PBMs to favor high-cost drug products that have correspondingly high rebates. Patients whose out-of-pocket costs are based on the list price pay more as that price increases.
Kenneth C. Frazier, Chief Executive Officer (CEO) of Merck & Co. Inc., during a February 26 hearing of the Senate Committee on Finance, briefly described how the rebate–list price dynamic affects his company.
“We have lowered list prices in the past and found that it creates a financial disadvantage for the company. And it doesn’t get us more [sales] volume, because of the incentives in the system,” he said.
Frazier was one of seven executives from major biopharmaceutical companies who testified during the hearing, part of a series on high drug prices. ASHP has submitted statements to the committee for the first and second hearings.
Committee Chairman Chuck Grassley of Iowa said the February 26 hearing was “not about scapegoating,” but he nonetheless had strong words for the drug company executives.
“We’re sick and tired of the blame game. It’s time for solutions,” Grassley said.
Ranking Member Ron Wyden of Oregon said drug prices “are astronomically high because that’s where pharmaceutical companies and their investors want them.”
Each executive, when pressed, acknowledged that drug companies are ultimately responsible for setting the list price of their products.
As the hearing progressed, Senator Tom Carper of Delaware gained consensus from the executives on three practices that could result in lower list prices for drugs: eliminating rebates, establishing value-based pricing arrangements that tie payments to clinical outcomes, and requiring full transparency in how drug companies set list their prices.
AstraZeneca CEO Pascal Soriot touted a value-based contract the company recently negotiated with the University of Pittsburgh Medical Center Health Plan for Medicare enrollees who take ticagrelor after being hospitalized for heart attack or unstable angina.
The contract, which went into effect in January, establishes a generic-level copayment for patients and ties reimbursement for the drug to cardiovascular outcomes.
Soriot said the arrangement “really adds value to the system” because patients will get healthier when they take the medication, and the hospital will benefit from reduced readmissions.
Frazier said that if said the suggested actions on rebates, value-based pricing, and transparency are implemented together, Merck “would be lowering list prices.”
Pfizer CEO Albert Bourla said the proposed actions would disrupt and transform the biopharmaceutical industry, possibly in unknown ways.
“However, we do agree that these are the three things that need to be done. And also I believe that would have significant meaningful results if you do it,” he said.
Soriot said that if rebates are eliminated from Medicare Part D prescription drug plans and commercial plans, AstraZeneca would reduce its list prices by the amount of the rebates, minus any fees required by wholesalers and other supply chain entities.
Giovanni Caforio, CEO of Bristol-Myers Squibb Co., said he supports the three proposed actions and also urged Congress to take steps to bolster competition in the generic and biosimilar product markets.
Several witnesses and committee members said that effort is already underway through Senate bill 340, the Creating and Restoring Equal Access to Equivalent Samples (CREATES) Act of 2019.
ASHP, in its written statement to the committee, asserted that the CREATES Act would “help ensure that brand-name pharmaceutical companies cannot manipulate regulatory rules to prevent competition, which is essential for patient access to affordable medications.”
Information about ASHP’s ongoing efforts to address high drug prices is available at the advocacy section of ASHP’s website.