House Committee on Oversight and and Reform Releases Report on Drug Pricing
Last week Representative Maloney (D-NY) who is the Chairwoman of the Committee on Oversight and Reform released the final staff report, resulting from a multi-year investigation into drug pricing. The Committee investigation was originally started by the late Representative Cummings.
Here are a few findings from the report.
Drug companies aggressively raise prices to meet revenue targets, and executive compensation structures create incentives to raise prices. The companies in the Committee’s investigation collectively raised prices more than 250 times on the 12 drugs examined. The drugs in the Committee’s investigation are now priced at a median of almost 500% higher than when they were brought to market. The Committee ’s investigation revealed evidence that company executives made aggressive price increases to meet ever-increasing revenue targets and earnings goals. All ten companies have compensation structures that tie incentive payments to revenue and other financial targets, and several companies directly tied incentive compensation to drug-specific revenue targets.
Drug companies target the U.S. market for higher prices and use the Medicare program to boost revenue. Internal strategy documents show that drug companies targeted the U.S. market for price increases—while maintaining or lowering prices in the rest of the world—in part because Medicare cannot negotiate directly for lower prices. The Committee’s analysis found that taxpayers could have saved more than $25 billion over a five-year period for just seven of the drugs investigated—Humira, Imbruvica, Sensipar, Enbrel, Lantus, NovoLog, and Lyrica—if private Medicare Part D plans had obtained the same discounts as other federal health programs that are empowered to negotiate.
Drug companies abuse the patent system and FDA market exclusivities to suppress competition. Collectively, the companies in the Committee’s investigation have obtained more than 600 patents on the 12 drugs examined, which could potentially extend their monopoly periods to a combined total of nearly 300 years.
Drug companies use strategies to suppress competition and maintain monopoly pricing. Every company in the Committee’s investigation engaged in one or more strategies to suppress competition from generics or biosimilars. These strategies include what are often described as “life-cycle management” or “loss of exclusivity” strategies: (1) shifting patients to new products or formulations of a drug just before facing generic competition for the old formula (known as “product hopping” or “evergreening”); (2) pursuing contracts with PBMs and insurers that condition rebates and discounts on excluding competitor products; and (3) aggressively marketing directly to patients and physicians to drive sales, especially as drugs faced generic competition. The Committee’s investigation also uncovered new evidence of “shadow pricing,” a practice in which would-be competitor companies follow each other’s price increases.
Drug companies use patient assistance programs as a public relations tool to boost sales. The Committee’s investigation uncovered new evidence that companies emphasized the significant returns on investment from these programs in the form of increased sales, particularly for drugs approaching loss of exclusivity. Internal documents show that companies view these programs as an important public relations tool, but that companies’ spending on patient assistance programs is minimal compared to the enormous amount of revenue brought in by these drugs. These programs often do not provide sustainable support for patients and do not address the burden that the company’s pricing practices have placed on the U.S. health care system.
Research and manufacturing costs do not justify price increases. The Committee’s investigation found that companies’ investments in R&D are far outpaced by revenue gains. The investigation also found that even if the pharmaceutical industry collected less revenue due to pricing reforms, drug companies could maintain or even exceed their current R&D expenditures if they reduced spending on stock buybacks and dividends. From 2016 to 2020, the 14 leading drug companies spent $577 billion on stock buybacks and dividends—$56 billion more than they spent on R&D over the same period. In addition, companies dedicated a significant portion of their R&D expenditures to research intended to extend market monopolies, support the companies’ marketing strategies, and suppress competition.
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