HELP Committee Hears Industry Testimony on the High Cost of Drugs

The Senate’s Health, Education, Labor and Pensions (HELP) Committee today heard testimony from pharmaceutical manufacturers and the supply chain in a full committee hearing titled “The Cost of Prescription Drugs: How the Drug Delivery System Affects What Patients Pay.”

The Committee Chairman, Senator Lamar Alexander, R-Tennessee, opened the hearing by calling for committee members to focus their questioning on drug pricing after the HELP committee’s first hearing on the same topic—a June hearing of the same title—turned to debate over repealing the Affordable Care Act.

Testifying on behalf of the Pharmaceutical Research and Manufacturers of America was Lori M. Reilly, the organization’s executive vice president, who suggested that drug costs are not, in fact, on the rise. “Drug costs are declining from their peak in 2014,” said Reilly, who highlighted the fact that the spending on physician administered drugs is remaining steady at approximately 14% of total drug expenditures per year. Only 6.8% of drug spending goes back to brand-name drug manufacturers, Reilly added, pointing to the hospital sector as the primary driver of cost increases for patients—hospitals, according to Reilly, are reimbursed at approximately 2.5 times the drug acquisition cost. She also suggested that pharmacy benefit managers (PBMs) should be subject to greater competition to drive down drug costs.

Chester Davis, Jr, president and CEO of the Association for Accessible Medicines, countered that generics are not responsible for increased prescription drug costs, either, as generics are responsible for only 26% of drug-related expenditures while providing over 89% of all prescriptions dispensed in the United States. Revenue has declined by 13% for generics, he added, and credited “fierce” competition for driving down costs.

According to Davis’ testimony, generics save the healthcare system $5 billion per week, and “that translates into meaningful patient access.” Like Reilly, Davis pointed to the lack of competition among purchasers, saying that only 3 organizations accounted for 90% of all generics purchases. Davis, however, had harsh words for his colleagues in the branded pharmaceuticals industry; under questioning from Senator Patty Murray, D-Washington, as to why biosimilars have not led to greater reductions in prices for biologic therapies, Davis said that anti-competitive behavior is blocking biosimilars from market access. Davis said that originators are “unequivocally” trying to keep biosimilars off the market, and “thinking that they can actually get away with it.”

Testifying on behalf of the Healthcare Distribution Alliance was senior vice president of government affairs and general counsel, Elizabeth Gallenagh, who followed the first 2 witnesses in suggesting that her industry did not bear substantial responsibility for increased costs to patients, either. She pointed to a low profit margin for suppliers, which she estimated at approximately 1%, as evidence that suppliers haven’t benefitted from soaring drug prices. In fact, she said, supply chains help to keep costs down by allowing buyers to maintain just-in-time inventory, reducing the need to carry large supplies of products.

Mark Merritt, president and CEO of the Pharmaceutical Care Management Association, an organization representing PBMs, suggested that PBMs are not to blame for high costs, given the fact that they incentivize the use of lower-cost generics. “Supply chains have nothing to do with why manufacturers raise prices,” Merritt said, telling the committee that drug prices follow “the law of supply and demand, not supply chains.”

Thomas E. Menighan, executive director and CEO of the American Pharmacists Association, offered one specific remedy for increased drug prices: Menighan urged the Senate to pass S109, the Pharmacy and Medically Underserved Areas Enhancement Act, which would amend the Social Security Act to provide Medicare coverage for pharmacist services.

Menighan also took a firm position on pharmaceutical rebates; under questioning from Senator Alexander, who asked “Why do we need rebates at all? Wouldn’t it increase transparency if manufacturers created a list price? Wouldn’t it make it simpler for us to figure out where the money goes?” Menighan said that his organization opposes rebates “in all their forms.”