Big Pharma Has No Good Answer for Their High Drug Prices

Richard A. Gonzalez, chairman and CEO of AbbVie Inc., lookin’ glum
Photo: Getty

Everyone knows drug prices are too high—even Republican politicians, who were among those asking some reasonably good questions of seven top pharmaceutical company executives today at a Senate Finance Committee hearing.

Sen. Chuck Grassley, for example, brought up “people skipping doses of their prescription drugs to make them last until the next paycheck.” That’s a bit rich, since his party spearheaded efforts to destroy coverage for people with preexisting conditions, but it is still a little remarkable to see even Republicans acknowledge the effects of high drug prices.

The senators also grilled the pharma executives on a number of issues related to the soaring cost of drugs, including the amount they spend on marketing versus research, the funding they receive from the government for said research, and whether they manage to make a profit in the rest of the world where they don’t charge the absurd prices they do here. (When asked directly, each pharma exec present admitted they do, in fact, still manage to turn a profit in those countries.)

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As NPR reported, the execs were also keen to deflect “blame onto the insurance industry, government and middlemen known as pharmacy benefit managers,” and “defended their industry by touting their multi-billion dollar investments in research and development.”

These are laughably weak defenses. I won’t even spend time on the asinine argument that research into new cures would cease without high list prices—just know that, for example, 78 percent of patents approved by the FDA are for meds that are already available, meaning they’re not new or innovative at all, and that taxpayer-funded research supported every new drug approved between 2010 and 2016.

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So what’s with the pharmacy benefit managers? PBMs are the companies that contract with health insurers to manage their prescription drug plans. These companies receive rebates from drug manufacturers, but they don’t have to disclose how much those are for, and they don’t have to pass the whole amount onto insurers or consumers. The Trump administration is considering killing these confidential rebates, a move PhRMA praised but was poorly received by PBMs and health insurers. (Health insurers like the rebates because they reduce their costs.)

Yes, PBMs are awful, rip-off middlemen. But that doesn’t change the absurdity of many drugs’ list prices—like doubling the price of insulin for no reason other than profit—and Big Pharma execs know that. They must know, as well, that if and when rebates end doesn’t reduce prices for consumers enough, people won’t be satisfied. They know that eventually, arguing that it’s not their fault that they set these prices so high will no longer hold water.

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And they know that the tide is turning. When Sen. Pat Roberts asked Merck CEO Kenneth Frazier what keeps him up at night, he said (emphasis mine):

The thing that keeps me most up at night is the concern that we will not have a viable predictable market that will allow people to continue to put the very large amounts of money up at risk for a long period time in an attempt to find solutions to some of the hardest problems like Alzheimer’s that have evaded solutions. What really concerns me is when we don’t treat these issues as a systemic issue, and the public thinks they have to have outrageous solutions to the problem, where in the future we won’t get these drugs.

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What kind of “outrageous solutions” could he mean? Could he be referring to plans like Elizabeth Warren’s bill to let the government manufacture generic drugs? Or perhaps does he mean the biggest, boldest healthcare proposal gaining traction with the public, and threatening pharma to the extent that they’ve joined forces with the rest of the healthcare industry to create a massive advocacy campaign against it? Single-payer would allow the government to negotiate drug prices for all 320 million Americans. Single-payer would make America’s healthcare system more like the rest of the developed world, where spending on drugs just happens to be far, far lower per capita.

If you want a good idea of what the best prescription drug policy would be, you could do worse than to look at what scares Big Pharma most.

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About the author

Libby Watson

Splinter politics writer. libby.watson@splinternews.com