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Drugmakers face Senate over drug pricing

When seven executives from the world’s largest pharmaceutical companies appear in front of Congress this week, they will face a rare united front in US politics: both Republicans and Democrats agree that the price of drugs is just too high.

The six chief executives from Merck, Pfizer, AstraZeneca, AbbVie, Sanofi, and Bristol-Myers Squibb, plus an executive president from Johnson & Johnson, will face tough questions on Tuesday on what is fast becoming a key election issue for 2020.

As more and more Americans are covered by “high deductible” health insurance plans that see them paying a greater proportion of drug prices from their own pockets, politicians are eager to show they are just as shocked as patients at high costs.

David Friend, co-founder of the BDO Center for Healthcare Excellence and Innovation, said the hearing will be “political theatre”.

“While the Democrats and Republicans have different approaches, they would both like to be seen as champions of lower drug prices,” he said.

Dramatic drug price rises — including the notorious case of Martin Shkreli hiking the price of Aids drug Daraprim by almost 5,000 per cent, and aggressive increases from Valeant, have made headlines in recent years, stirring patient anger against the pharma industry.

There seems to be a feeding frenzy among the Democrats who are running for president to go after the drug industry, to outdo each other with nonsensical proposals

But many people are more likely to be hit by the creeping steady rise of popular drugs and high price tags for innovative treatments, such as new therapies for cancer. Spending on pharmaceutical drugs is forecast to rise an average of 6.3 per cent a year from 2017 to 2026, according to the US government’s Center for Medicare and Medicaid Services. The total bill for retail prescription drugs in 2017 was $333bn.

President Trump vowed to lower “unfair” drug prices in his State of the Union speech this month, saying he will tackle the problem of “global freeloading” — countries with lower prices benefiting from research by US drugmakers — and deliver “price transparency”.

The administration’s most concrete proposal so far came last month when Alex Azar, the health and human services secretary, proposed a rule to push rebates from manufacturers directly to consumers, rather than languishing with middlemen in an opaque system.

But the Democrats favour even more extensive regulation, with five presidential candidates — senators Bernie Sanders, Cory Booker, Kirsten Gillibrand, Kamala Harris and Elizabeth Warren — supporting three sweeping bills to shake up the pharmaceutical market.

The bills would peg the price of prescription drugs in the US to the median price in five major countries — the UK, Canada, France, Germany and Japan — allow patients and pharmacists to import safe, affordable medicine from Canada and other countries and instruct Medicare, the government-subsidised health plans for seniors, to negotiate lower drug prices collectively.

Joe Panetta, chief executive of Biocom, California’s biotech trade association, said he hopes the hearing does not focus on “demeaning and chastising the industry” that has contributed so much to the quality of life and health of patients.

“There seems to be a feeding frenzy among the Democrats who are running for president to go after the drug industry, to outdo each other with nonsensical proposals,” he added.

While US lawmakers vie to be the people’s champion, the pharma executives appearing before the Senate finance committee on Tuesday are likely to do two things, according to Michael Rea, chief executive of Rx Savings Solutions, which develops software for employers and health insurers to help cut prescription drug costs: say sorry and point fingers at others.

“They will push back against the idea that drug price hikes really go to their bottom line. They will argue that it’s a very complex system and lots of other people have their hands in the cookie jar,” he said.

“They’ll also try to distance themselves from bad behaviour — smaller companies raising prices 50 or 100 per cent — although, in reality, 10 per cent hikes are still four times inflation and a lot of dollars for some of the mass-market drugs.”

Pascal Soriot, chief executive of UK-based AstraZeneca, will try to make the case that pharma can play a role in reducing costs for the health system overall. Speaking to reporters after releasing the company’s fourth-quarter results this month, Mr Soriot said he intended to tell the lawmakers that “pharmaceuticals can be part of the solution, as opposed to part of the problem, if we start looking at healthcare costs in their totality”.

One area of questioning the committee is likely to focus on is whether rebates — the discounts that drug companies offer to insurers — are pushing up costs for consumers, who often have to pay a proportion of the list price of a drug rather than the discounted price.

Speaking before the hearings, Chuck Grassley, the Republican chairman of the committee, said: “Nobody seems to know exactly how you arrive at a price and why do you have rebates — [both] in the sense of how big [the rebates] are and who benefits from a rebate, whether the consumer benefits or if someone in between benefits.”

Many are likely to point the finger at pharmacy benefit managers, the companies that administer drug programmes for insurers. Drugmakers have welcomed Mr Azar’s proposal to bring transparency to the rebate system, arguing the PBMs should be passing more of them to patients.

As diabetic patients have shared horror stories about not being able to afford insulin, Sanofi and rivals Eli Lilly and Novo Nordisk have come under fire for price increases on the essential medicine.

But Adam Gluck, head of external affairs for Sanofi, said the net price for its insulins had declined by 25 per cent since 2012 because of competition, but that had not been passed on to consumers.

“We know there’s a lot of anger among the patient community about why their costs continue to go up, and we share their frustration that declining net prices in insulin have not translated into lower costs for patients,” he said.

Mr Panetta said it was “only fair” that every part of the industry should be discussing how to bring down prices. “Why aren’t the PBMs being brought to the Hill? Why aren’t the insurance companies being brought to the Hill?” he asked.

Under fire, the Pharmaceutical Care Management Association, the trade body for PBMs, recently launched an advertising campaign to demonstrate how they are “advocates for consumers in the fight to lower prescription drug costs”.

Sunday, 10 February, 2019

But others believe technology will disrupt the PBMs’ business models, so regulators do not have to.

John Sculley, the former chief executive of Apple who now leads RXAdvance, a PBM cloud platform, said companies like his — and Amazon, which bought online pharmacy PillPack last year — will introduce transparency into the market.

“Amazon is going to be a big player in this industry,” he said. “It is a problem better solved by the private sector.”

The seven executives will push back hard on proposals that will directly target their businesses, from setting prices based on those in other countries and allowing imports from abroad, to pushing Medicare to negotiate lower prices and measures to encourage more generic competition.

The pharma groups will tout the vital research and development for the whole world — and each drug costs an average of $2.6bn to create, according to the Tufts Center for the Study of Drug Development.

They will also explain how they are innovating with new payment models such as value-based pricing, where insurers only pay for drugs which are proven to be effective. There are now more than 40 such contracts for medicines, according to industry association PHRMA.

Mr Soriot has cited Brilinta, a drug to treat cardiovascular disease, where AstraZeneca has made a commitment that no more than a certain percentage of patients prescribed the medicine would suffer a second heart attack, saving money on hospitalisation.

Mr Friend said the pharma companies know they have to take action.

“They are aware at the growing anger in the US over drug pricing,” he said. “If they don’t do something, they could have price controls shoved down their throat.”

No alternative

Cristie Felix cannot forget a trip to her local CVS in North Carolina this time last year.

She was picking up Temodor, a Merck-made drug for her stage IV brain cancer, that usually cost her $75. But as her husband’s insurance had recently switched from Cigna to United, the bill had jumped: her insurance would now pay only $1,100 of the $7,000 price tag.

“Think about that: $5,900 a month after the insurance kicks in,” she said.

Ms Felix had already experienced an adverse reaction to the generic alternative, which made her “super super sick”.

“I have brain cancer. It’s not like I have a cold, it’s not like I had any other option; this was the only drug I could take that would help shrink my brain tumour,” she said.

She feels lucky that her husband’s employer hired a mediator to help them reduce the cost — and eventually she was enrolled on a programme run by Merck to receive it free of charge.

But like many US patients struggling to navigate the complex and expensive healthcare system while they are sick, Ms Felix holds both the government and the drug companies responsible for high prices.

“It’s almost like they combined forces to make this so difficult,” she said.

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