Highlighting the partisan nature of Congress these days, the House Oversight and Reform Committee and the Republicans on the Committee each recently published two separate reports that present findings from their drug pricing investigation. In the Democrats’ report, it outlines several ways in which pharmaceutical companies are allegedly raising prices and suppressing competition. The Republican report, in contrast, focuses on the practices of pharmacy benefit managers (PBMs) and their alleged impact on higher drug prices.
These competing reports follow the investigation that was launched by the Committee on January 14, 2019. Since the start of the investigation, the Committee has released eight reports on ten companies (including AbbVie Inc., Mallinckrodt Pharmaceuticals, Novartis Pharmaceuticals Corporation, and Teva Pharmaceuticals Industries Ltd.) that sell twelve of the most expensive drugs under the Medicare program. Each of those reports looked at business practices related to stock buybacks, investment in research and development, and potential anticompetitive behaviors of the companies.
Democrat’s Report
In their published report, the Democrats on the Committee believe that drug companies are incentivized to “aggressively raise drug prices” to reach increasing revenue targets. The report specifically notes that companies often raise the prices of drugs as they reach the end of patent protection or market exclusivity to meet increased revenue targets.
The report also found that executive compensation structure incentivized those price increases. For example, of the 12 drugs examined, the Committee found that their net prices had significantly increased year-over-year and their sale had generated $38.5 billion in 2019 alone, which resulted in more than $2 billion in top-level executive compensation.
The report also found that according to internal company documents, certain drug companies are allegedly boosting their revenue by targeting the United States health care market for price increases, using Medicare’s inability to negotiate drug pricing to their financial benefit. According to the report, taxpayers lost more than $25 billion from 2014 to 2018 for just seven of the 12 drugs examined because Medicare could not negotiate to lower drug prices.
The report also notes that drug companies have allegedly suppressed competition by manipulating the patent system and abusing Food and Drug Administration (FDA) market exclusivities. The Committee found that the companies included in the investigation held more than 600 individual patents on the 12 drugs examined, “which could potentially extend their monopoly periods to a combined total of nearly 300 years.”
The report also noted that these companies have used several different strategies to “suppress competition and maintain monopoly pricing,” including “product-hopping,” “evergreening,” “shadow pricing,” direct-to-consumer advertising to suppress competition from biosimilars and keep prices high. The Committee alleges that these drug companies have been using their patient assistance programs to publicly highlight their stakeholders returns on investments to drive sales and attract more patients.
When it comes to R&D, the report found that the revenue generated by the companies was greater than the investments made in R&D for new medicines. The report found that the expenditures related to R&D of certain drugs accounted for about four percent of the company’s revenue generated by the product.
Republican’s Report
After the final report was issued by House Oversight and Reform Committee Democrats, the Committee’s Republicans issued their own, much shorter, report. The report issued by the Republicans focuses specifically on the practices of PBMs and the role they have played in high drug prices.
The report found that the practices of PBMs increase prices in three ways: (1) by requiring “fail first” practices, (2) using their market leverage to increase profits without reducing prices for consumers, (3) hurting competition and distorting the market by owning their own pharmacies. For example, the report points out that “savings from the discounts and rebates do not make their way down to the consumer; they go to the PBMs’ bottom line.”
The Republican report notes that drug manufacturers raise their prices to offset higher rebates and discounts demanded by PBMs. PBMs then pocket the higher rebates received from the more expensive drugs.
The report emphasizes the need for greater transparency to determine the extent of the damage PBM practices are having on patients and the marketplace and calls for further congressional review of legislative solutions to provide meaningful reform.
PhRMA Response
In response to the two reports, the Pharmaceutical Research and Manufacturers of America (PhRMA) released a statement that supports the concerns outlined in the Republican report, and raising concerns about the report issued by the Majority Committee. In the statement, PhRMA Executive Vice President for Public Affairs, Debra DeShong, says, “this misleading report fails to address abusive practices by insurance companies and middlemen who profit off a broken system while patients can’t afford their medicines. This so-called investigation has ignored the real affordability problems people face, like rising deductibles and other out-of-pocket costs. This is nothing more than a partisan exercise to justify an extreme proposal that will restrict patient access to lifesaving cures and treatments. We think there’s a better way that would lower costs at the pharmacy, while preserving choice, access and innovation. We are committed to working with policymakers on commonsense, bipartisan solutions that address the real affordability challenges patients face.”