Big Pharma got what it needed from the Senate Finance Committee’s stage-managed grilling of seven drug industry CEOs: a general consensus to make PBMs the fall guys for high drug prices.
There’s no defending a pricing system that gives middlemen incentives to accept high list prices. PBMs like high prices because it allows them to earn higher fees and to demonstrate to their customers—the employers who purchase drug plans—their rebate-negotiating prowess. But this kabuki leaves prices high and patients paying escalating out-of-pocket costs.
Here’s the truth. Even if Congress prohibits rebates and requires drug companies to pass along every dime in savings to customers, which almost every CEO in attendance pledged to do, tens of millions of patients will still be hitting their out-of-pocket maximums. Replacing private sector kabuki with political kabuki is no solution for the out-of-control topline prices set by manufacturers.
Sadly, not one senator on either side of the aisle seriously questioned the industry’s Soup Nazi justification for the status quo: no high prices, then no innovation for you.
Until the government and patient advocacy groups (too many of which are on Big Pharma’s payroll) pull the plug on that myth, the U.S. will never have affordable drugs. Sure, a few senators noted the government’s heavy investment in basic research, grants to developers, and tax breaks for research and development. Some pointed to the industry’s marketing and administrative costs, which far exceeds investment in R&D.
Others noted the money wasted on direct-to-consumer advertising and pitching physicians. The industry response—that ads like those on TV are a necessary part of patient education—is an insult to both patients and educators.
Alas, no one seriously questioned the industry’s claim that giving endless pots of money to drugmakers is a prerequisite for a future without Alzheimer’s or cancer. Sen. Debbie Stabenow (D-Mich.) hinted at the underlying truth when she quoted a recent study showing every one of the last 210 drugs to win Food and Drug Administration approval had National Institutes of Health funding to thank for the basic science behind the discoveries.
Congress needs to take that understanding to heart. The pipeline to new and better drugs doesn’t run through Big Pharma’s labs. It starts with basic science funded by NIH and private foundations, mostly at the nation’s top universities. Those scientists develop potential drug candidates that get spun off to biotech startups. The projects with the greatest likelihood of success are eventually bought up by the big drug companies, who take it through final clinical trials.
NIH funded the scientist who founded Pharmasset, which developed Sovaldi for hepatitis C. It was eventually sold to Gilead Sciences for $11 billion. The Cystic Fibrosis Foundation funded the scientists who developed Kalydeco, which was turned over to Vertex Pharmaceuticals (which also got grants from CFF) for $3.3 billion.
CAR T-cell therapy, the hot new thing in cancer treatment, was developed by University of Pennsylvania scientists. It was taken through the FDA approval process by Novartis. It’s now being sold at price tag of $475,000 a treatment.
What these and dozens of similar examples have in common is that the final prices aren’t driven by the cost of development. They are driven by the payoffs expected on Wall Street from a pricing strategy that is best captured by the phrase “whatever the market will bear.”
The government needn’t be afraid of passing a law allowing Medicare to negotiate prices. If it truly wants to promote development, it would be wise to use half the savings to double NIH funding.
In a rare moment of honesty, Jennifer Taubert, worldwide chair of J&J’s pharmaceuticals division, told the panel: “The easy diseases have largely been solved.”
The next big breakthroughs on Alzheimer’s, cancer and hard-to-treat rare diseases will require a lot more basic research. That’s something the industry is incapable of providing no matter how much money Medicare, health plans and patients pour into its coffers.