Soaring drug prices provoke scathing hearings, Congressional report
November 1, 2020
Enormous drug company profits are the primary driver of soaring prescription drug prices in America, according to an investigation that Democrats on the House Oversight Committee released recently.
The report, based on an 18-month investigation which produced more than a million documents, was started by former committee chairperson Rep. Elijah Cummings, D-Md.., who died last year. But it was largely overlooked, with the nation focused on COVID-19 and the presidential elections – despite a congressional hearing with verbal fireworks involving drug company CEOs.
The report focused on Teva, Celgene and Bristol-Myers Squibb, three of the nation’s largest drug companies – and specifically, the pricing of two drugs: Teva’s multiple sclerosis drug Copaxone and Bristol-Myers Squibb’s multiple myeloma drug Revlimid.
Revlimid cancer treatment saw its price hiked 23 times since 2005. The drug, originally produced by Celgene, and now owned by Bristol Myers Squibb, today costs $763 per pill, or $16,023 for a monthly course — more than three times the original cost in 2005. Teva’s multiple
sclerosis drug Copaxone went up in price 27 times since – from less than $10,000 for a yearly course in 1997 to nearly $70,000.
Several themes common to pricing practices emerge in the congressional report, particularly aggressive pricing strategies that depend on the U.S. market and are divorced from underlying costs of manufacturing or development. Among them were tactics that Teva used to ward off competition, such as introducing new formulations of Copaxone and contracting with payers to limit generic substitutions for the blockbuster medicine.
These price hikes have been predictably profitable. Teva has banked more than $34 billion in net profits in the United States alone, while Revlimid spun off $32 billion from the United States from 2009 to 2018 for Celgene. Medicare alone paid $17.5 billion for Revlimid from 2010 to 2018.
The congressional investigation, however, found that those costs had little to do with research and development or industry efforts to help people afford medication, as drug companies often claim, according to the probe. Much of the drug industry’s profits come at the expense of taxpayers and the Medicare program, and were used to pay generous executive bonuses. They were guarded by aggressive lobbying and efforts to block competition, regulation or systemic change in the United States while the rest of the world pays less, the reports say.
House Democrats have passed H.R. 3, which would allow Medicare to negotiate over drug prices and use the power of buying for 55 million people to get volume discounts on drugs seniors need, a measure lawmakers believe would fix the problem. But the Senate has not taken up the measure and is not expected to any time soon.
Congress specifically prohibited Medicare from negotiating when it approved allowing Medicare Part D to cover seniors’ prescriptions in 2006. That bill is also a combination of 35 bipartisan drug pricing bills, that among other things includes a cap on what seniors could pay each year for drugs at $3,100.
The committee’s investigation substantiated a number of incriminating tactics used by drugmakers to jack up their prices. It also undercuts the pharmaceutical industry’s claims that increased rebates, discounts and fees paid to pharmacy benefit managers drive prices. In the case of Revlimid, the largest discount Celgene ever paid in the commercial market was 5%, and the drug’s average net price after rebates, discounts and fees rose every year.
The average net price of Teva’s Copaxone similarly spiked every year until 2017 when a generic finally hit the market. Indeed, while Teva touted its patient assistance programs as a cost driver and a way to help people afford the drug, internally it described those efforts as a marketing ploy that spurred sales, according to documents released as part of the investigation.
Oft-mentioned research and development (R&D) didn’t account for costs, the report found. In the case of Teva, it is particularly glaring. Teva identified $689 million in development costs since 1989 — only about 2% of its U.S. profits from 2002 to 2019.
For Revlimid, the drug stemmed from basic research done in government-backed studies on other drugs – thalidomide and related compounds. Celgene swooped in after the research showed the promise of the compound that would become Revlimid. And as it justified price hikes, Celgene’s internal documents cited the value of the drug, not the costs to develop it. To prove the value, it cited numerous research studies, many of which were done by others, including the National Institutes of Health.
The companies used aggressive lobbying tactics to protect its price hikes and then also made it extremely expensive for generic developers to buy enough samples for their own studies – resulting in preventing or delaying generic manufacturers from being able to make their own versions of the drugs.
The report also looked extensively at a few other companies and found similar tactics and justifications for significant price increases over the past two decades. The CEOs of Amgen, Novartis and Mallinckrodt also were grilled by lawmakers on a second day of hearings. Amgen makes Enbrel, one of the world’s best-selling autoimmune drugs, and Sensipar, a kidney failure treatment; Mallinckrodt makes H.P. Acthar Gel, whose price has skyrocketed from $40 to $31,000 per vial. It has since increased that price by another $8,200.
Novartis manufactures Gleevec, a cancer medicine that saw prices rise more than 395 percent in roughly 15 years. Novartis, like Teva, was singled out for its apparent openness to discussing middleman contracts in order to keep generic competition at bay for Gleevec.
The committee also subpoenaed pricing documents from AbbVie, maker of the top-selling arthritis drug Humira, after the company refused to hand over key information.
The report concludes what many have known for decades that the single-greatest step to curb prices, according to the report, would be to allow Medicare to negotiate prices.
Hearing’s questioning heroines
The hearings, which were controlled by the Democratic majority, focused on how uninhibited pricing power has transformed America’s medical issues into pharma’s profit. Republicans on the committee saw the hearing as a way to vilify and publicly shame pharmaceutical company executives. The hearings certainly accomplished that, if it was the goal.
Leading the aggressive questioning were three Democratic freshmen lawmakers – Reps. Katie Porter, D-Calif., Rashida Tlaib, D-Mich., and Ayanna Pressley, D-Mass., who put the drug industry CEOs on the defensive.
Porter, who was a consumer protection attorney before she ran for Congress, has made a name for herself by embarrassing CEOs with prosecutorial questions and for using a whiteboard to spell things out so people could understand complicated subjects in an easy-to-digest way, was ready for the moment.
She used her whiteboard to display Celgene’s repeated price hikes for Revlminid, which now costs $763 per dose, up from $215 in 2005. She questioned Mark Alles, who served as Celgene’s CEO until Bristol Myers Squibb acquired the company in 2019, breaking down the profits for Celgene in a very personal way, telling Alles exactly how much of his $13 million compensation came from a bonus off Revlimid price hikes: $500,000, pegged to profits from that one drug. Porter noted that taxpayers spent $3.3 billion on Revlimid for Medicare beneficiaries.
She asked Alles to explain whether the drug had improved over that same period of time. When Alles tried to insist that the drug was improved for new indications, Porter pressed harder.
“Did the drug start to work faster? Were there fewer side effects? How did you change the formula or production of Revlimid to justify this price increase,” Porter asked.
“To recap here,” Porter said, “The drug didn’t get any better, the cancer patients didn’t get any better, you just got better at making money, you just refined your skills at price gouging,” she concluded.
Tlaib, the Michigan Congresswoman, took on Teva’s CEO Kare Schultz with similar force and precision, forcing him to
describe how the company uses charity programs to boost their sales. When Schulz insisted that the programs weren’t used to make money, she pulled out internal documents showing Teva mapped out return on investments from their charity programs.
“In my district, Mr. Schultz, we call this a side hustle,” Tlaib charged. “Your pharmaceutical company makes these so-called charitable donations … but in reality these are just another scheme by your corporation to make money off of sick people.”
Schultz insisted that research and development is a significant cost and one the public doesn’t see until the drug is approved. “You have to expend a lot of resources and endure many disappointments before bringing to the market safe and effective medicines,” Schultz said.
On the second day of hearings, where Amgen CEO Robert Bradway testified, Porter again returned to her white board and black magic marker, detailing Amgen’s R&D expenses ($10 billion), lobbying expenses ($32.5 billion), executive compensation ($124.2 million) and stock buybacks ($28.6 billion) for 2017 to 2019 and asked Bradway to explain why executives deserve annual compensation exceeding $10 million, as many drug company CEOs earn.
Bradway said he had no “direct input” on his compensation, he said, citing company boards and shareholder votes and consistency with competition.
“The other guys gets paid too much, too,” Porter said.
Also contributing to this report were: Stat News, the New York Times, Medpage Today and Kaiser Health News.