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In Senate testimony, pharma executive admits drug prices hit poor the hardest

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Image: Pharmaceutical Executives Testify At Senate Finance Committee Hearin
CEOs of pharmaceutical companies testify before the Senate Finance Committee on Feb. 26, 2019 in Washington. -
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WASHINGTON — Top executives from seven major pharmaceutical companies told a Senate committee Tuesday they could not commit to lower the price of commonly used prescription drugs even as they admitted that they control those prices. And one executive acknowledged that the high cost of medicines hits poorest patients the hardest.

Called to testify before the Senate Finance Committee, the hearing marked the first time many of the pharmaceutical executives appeared before Congress. And they heard tough questions from senators about the rising cost of medicine and the system that allows for it.

The "list price" of drugs was a central topic of interest from senators as an artificial sale price set by the drug companies. The drug companies argued that rebates, usually geared to financially benefit the third-party pharmacy benefit manager who manages the negotiation of drug prices, actually drive up costs for consumers.

In a remarkably candid moment, Kenneth Frazier, chairman and chief executive officer of Merck, admitted that it's the poorest patients who pay the most for medicine by paying the list price while others benefit from rebates.

"The people who can least afford it are paying the most," Frazier said. "That's the biggest problem we have as a country," he said, "we have a system where the poorest and the sickest are subsidizing others."

It was a rare bipartisan grilling of executives of a powerful industry who insists that prices have stabilized in 2018 and 2019. Sen. Ron Wyden, ranking Democrat on the committee, said that it's up to the drug companies to lower prices.

"Drug prices are astronomically high because that's where pharmaceutical companies and their investors want them," he said. "The brakes have come off pharmaceutical pricing, and American families are hurtling along in the passenger seat terrified of what comes next.

The executives, however, said there are a series of structural impediments that prevent them from lowering costs, including government regulations imposed by Medicare. However, they appeared amenable to supporting Congressional-imposed ideas to lowering costs but didn't agree to independently doing so on their own.

"The system itself is complex and it is interdependent, and no one company could unilaterally lower list prices without running into financial and operating disadvantages," Frazier said. "But if we all bring parties together around the table with the goal of doing what's best for the patient to do what's best for the patient, I think we can come up with a system that works for all Americans."

Tuesday marked the first major hearing with CEOs on their pricing practices since Mylan CEO Heather Bresch was brought before House Oversight Committee in 2016 to face questioning about a 500 percent increase in the price of Epi-Pens.

Because the issue affects millions of Americans, tackling rising drug prices is a politically advantageous issue for lawmakers. But to implement any legislative change, they will have to battle with a powerful industry that donates generously to political efforts and also spend millions of dollars trying to influence legislation. The pharmaceutical industry spent $28 million dollars in 2018 lobbying, more than any year prior, according to the Center for Responsive Politics.

The executives appearing Tuesday, hailing from AbbVie, Merck, AtraZeneca, Bristol-Myers Squibb, Janssen, Pfizer and Sanofi, argued that there are systemic problems leading to high cost for consumers.

They said they support general ideas to lower costs, including getting rid of rebates and being more transparent about pricing, but the executives also pushed back at the notion that they were solely to blame for the rise in drugs.

They pointed to a statistic that consumers on Medicare pay 13 percent out-of-pocket for prescription medication, compared to just three percent for a hospital stay.

Some senators connected the large salaries of executives or the profitability of the company to drug costs.

Sen. Bob Menendez, D-N.J., noted that tax reform enabled drug companies to spend $40 billion buying back their own stock. He asked if the CEOs used any of their tax break to lower drug prices, most of the CEOs said they did not.

"It allowed us the opportunity to invest an incremental $30 billion in (Research and Development) and capital investment in the U.S. in the next four years," said Jennifer Taubert, executive vice president of Janssen Pharmaceuticals, the pharmaceutical arm of Johnson & Johnson.

Merck's CEO Frazier said his company's tax rate increase and Sanofi CEO Olivier Brandicourt said his company didn't receive much of a benefit from the tax cut because they are a French company.

The hearing comes after the Trump administration has attempted to control the cost of drugs offered in Medicare plans through executive authority, including implementinga ban on rebates, which would alter the way drug prices are negotiated.

The committee has separately launched an investigation into the dramatic increase of insulin into the three top insulin makers Eli Lilly, Sanofi and Novo Nordisk. Eli Lilly and Novo Nordisk executives were not present at the hearing. President Donald Trump's Health and Human Services Secretary Alex Azar was a top executive at Eli Lilly for five years until he was tapped by Trump to run HHS.

Sen. Chuck Grassley, chairman of the committee, said he was pleased with the hearing, noting that the companies didn't point fingers away from themselves "as much as I thought they would."