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Our Take: Senate committee grills drug company CEOs

Mar 04, 2019

Last Tuesday, members of the Senate Finance Committee held hearing on prescription drug pricing, with executives from AbbVie, AstraZeneca, Bristol-Myers Squibb, Johnson & Johnson, Merck, Pfizer and Sanofi testifying before the committee.

In a hearing that was at times contentious—but generally respectful on both sides—the senators and drugmakers agreed that high list prices are a fundamental problem that needs immediate attention.

You can watch the session in full here on C-SPAN.

Our Take: The CEOs at times looked bored, annoyed or some combination of the two, but they answered the senators’ questions with candor. After three hours of questioning, a few themes emerged.

While drug prices are highest in the United States, the drugmakers contended that those prices are necessary to support the research and development of new medicines. AbbVie CEO Richard Gonzalez said if drug prices in the U.S. were to drop to the same level as in European countries, “AbbVie would not be able to invest in the level of R & D that it invests in today.”

Sen. Bill Cassidy, R-La., said the question, then, is “How do we support innovation and support patients to afford the innovation?”

Some of the executives noted that after adjusting for discounts and rebates, prices are more comparable to those in other industrialized nations.

And therein lies the heart of the problem: list prices and the rebates/discount system. The senators homed in on rising list prices as being out of control, but pharma pointed the blame at a payment system that relies on complex, negotiated discounts and rebates.

Sen. Ron Wyden, D-Ore., singled out drug price increases by several of the companies represented by the executives in front of them, much to their discomfort. Wyden said AbbVie had raised the price of its blockbuster Humira (adalimumab) from $19,000 to $38,000 over six years, that Pfizer’s Lyrica (pregabaliln) had increased 163 percent since 2012, and that Sanofi had tripled the price of its insulin since 2010.

But again, the pharma executives said pharmacy benefit managers and government programs extract rebates and discounts based on list price, which creates a perverse incentive for drug manufacturers to raise prices.

In other words, PBMs aren’t complaining about high list prices.

AbbVie’s Gonzalez said that although the price of Humira increased by 6.2 percent, the company netted only 0.9 percent.

“The part in-between there is rebates that have gone up, and channel mix,” he said.

AstraZeneca CEO Pascal Soriot said if the rebates were removed in both Medicare Part D and the commercial sector, his company would reduce list prices. Merck CEO Kenneth Frazier and Pfizer CEO Albert Bourla agreed.

“I would urge you to recognize the system itself is complex,” Frazier said. “No one company can lower prices without disadvantages.”

The CEOs said if the rebate system were to remain, those rebates should be given at the pharmacy counter.

As predictable as the CEO testimony and acrimonious rhetoric from some of the senators, America’s Health Insurance Plans followed the hearing with a statement that put the blame squarely on pharma’s shoulders.

“Drug prices are out of control, and we appreciate the bipartisan approach that Congress is taking to get to the root of the problem: the prices set by drugmakers, and that they raise year after year, even on products that have been on the market for decades.”

Regardless of who’s to blame, one thing we can all agree on is this: Pharmaceutical pricing is needlessly complicated and frustratingly opaque to the consumer. The hearing last week was a small step in the right direction for change.

What else you need to know
Roche is acquiring Philadelphia-based Spark Therapeutics in a cash transaction valued at $4.8 billion. Under the terms of the agreement, Roche will acquire all outstanding Spark Therapeutics shares for $114.50 per share. In press release, Roche said Spark Therapeutics’ lead clinical asset is SPK-8011, a novel gene therapy for the treatment of hemophilia A. Phase III trials of SPK-8011 are expected to commence this year. The deal is subject to customary closing conditions.

Children’s Hospital of Philadelphia, which spun off Spark Therapeutics in 2013 with an initial $50 million investment, is a big winner in the deal, Bloomberg reported. Children’s Hospital of Philadelphia Foundation owns 10.6 percent of outstanding shares in Spark Therapeutics, which means the organization stands to make more than $450 million in the transaction. That’s in addition to an estimated $285 million the foundation earned from previous sales, according to Bloomberg. 

Following up on last week’s focus on telemedicine, Teladoc reported impressive growth in its full-year 2018 results. The Purchase, N.Y.-based telemedicine provider said its revenue grew 79 percent in 2018 to $417.9 million, outperforming expectations. Total visits climbed 80 percent to 2.6 million last year. For the first time, the company reported positive full-year adjusted EBITA, ending the year at $13.4 million. “We are excited by the continued acceleration of consumer adoption of virtual care, and Teladoc is at the forefront of that movement,” CEO Jason Gorevic said in a conference call. “We have established ourselves as the industry leader, and we were the provider with the most downloaded app in the telehealth category.”

A federal judge will not block a former Optum executive from employment with the Amazon-Berkshire-JP Morgan venture, Reuters reported. In a lawsuit filed in January, Optum sought a court order to prevent former Optum executive David Smith from working at the nascent venture, claiming he was violating noncompete and nondisclosure agreements. U.S. District Judge Mark Wolf didn’t agree and declined to issue a restraining order. Optum will continue to pursue its claims in arbitration, according to Reuters.

The Blue Cross Blue Shield Association unveiled a legislative proposal Thursday to strengthen key aspects of the Affordable Care Act and stabilize health insurance exchanges. The association called for increased subsidies to encourage younger people and lower-income earners to enroll on the ACA exchanges. The proposal also calls for the resumption of cost-sharing payments to insurers and the initiation of a reinsurance program. The association said the proposals would cut premiums by a third and increase enrollment by more than 4 million people.

House Democrats introduced “Medicare for all” legislation last week that would transition the U.S. health care system to a single-payer model in two years. The legislation, introduced by Rep. Pramila Jayapal, D-Wash., has more than 100 co-sponsors. The bill does not include a funding mechanism and is not expected to be brought to the floor for a vote by House Majority Leader Nancy Pelosi, D-Calif.

The merger between Beth Israel Deaconess Medical Center and Lahey Health is official as of March 1. The combined health system, known as Beth Israel Lahey Health, has 13 hospitals and 4,300 physicians. The recent approval by the Massachusetts Department of Health includes conditions, including limits on price increases through 2026 and increased support for low-income communities.

Executive moves
Memorial Hermann Health System President and CEO Chuck Stokes will retire at the end of 2019. Although internal candidates will be considered, the health system’s board will be conducting a national search for a replacement.

Amazon has named Nader Kabbani to run its new pharmacy business as vice president of consumables, special products. Kabbani is a 14-year veteran of Amazon.

Texas Health Aetna, a health plan partnership between Texas Health Resources and Aetna, named Cory Scott as its CEO. Scott was previously head of sales and services for Aetna’s Georgia, Louisiana, Alabama and Mississippi markets.

RWJBarnabas Health announced significant changes in its leadership and is restructuring its Southern Region. A full account of the changes is available here.

What we’re reading
Drug Prices. Bloomberg 2.5.19

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