Biotech and Pharma

In drug price hearing, Congress tries to answer some basic questions

Key Points
  • Senate holds first of three hearings on the drug pricing.
  • But some discussion of drug pricing took the backburner as Democratic Senators used the time to protest Republican handling of health-care reform.
  • Senator Chris Murphy said he hoped to discuss this issue but said it would be irrelevant if 23 million Americans lose access to health insurance.
Mylan NL CEO Heather Bresch holds EpiPens during a House Oversight and Government Reform Committee hearing on the Rising Price of EpiPens at the Capitol in Washington, U.S., September 21, 2016.
Yuri Gripas | Reuters

Are prescription drug prices going up or down? By how much? And where does the money that pays for prescription drugs actually go?

These were some of the basic questions a Senate committee hearing Tuesday morning aimed to answer about the U.S.'s system of paying for prescription medicines.

It was the latest government spotlight shone on the price of prescription drugs in the U.S., a topic President Donald Trump pledged to take on when he was elected but about which he has, ostensibly, so far done little.

"Americans want to know who pays for prescription drugs, and where that money goes," Senator Lamar Alexander, chairman of the Senate Health, Education, Labor and Pensions, or HELP, committee, said in his opening remarks.

That Congress needs a hearing to answer questions as simple as whether prices of medicines are rising or falling exposes the bafflingly complex system of prescription drug pricing in this country.

In fact, the Senate HELP committee plans to hold three hearings this year about the price of prescription medicines, Alexander said Tuesday. The first, titled "The Cost of Prescription Drugs: How the Drug Delivery System Affects What Patients Pay," aimed to answer those basic questions and a few others, such as: what are rebates and how do they impact consumers; and who actually pays the cost of prescription drugs?

It's a conversation that was thrust onto the national stage last year by Mylan Chief Executive Officer Heather Bresch, under pressure for the rising list price of the EpiPen. She pointed her finger at middlemen, including pharmacy benefits managers, or PBMs, as benefiting and even incentivizing higher prices for prescription medicines.

PBMs have since faced pressure over their business models, with Senator Ron Wyden (D-Ore.) introducing a bill earlier this year that would require PBMs in Medicare to disclose rebates provided by drug manufacturers.

And even before Tuesday's hearing, PBMs were playing defense. The industry's lobbying group, the Pharmaceutical Care Management Association, put out a statement proclaiming "PBMs are driving competition and reducing costs for consumers, employers, government programs and unions," and arguing policymakers should aim to lower costs by increasing competition.

Drugmakers weren't quiet before the hearing either, with industry group BIO releasing a "cheat sheet" Tuesday morning. It contained familiar industry arguments like "drug costs continue to be remarkably steady," at about 14 percent of all health-care spending; and that "biomedical research is a high-risk endeavor."

But the hearing itself did show signs of digging into the complexities of the health-care system, as experts in pricing took questions from senators.

Take one exchange between Louisiana Republican Senator Dr. Bill Cassidy and Allan Coukell, senior director of Health Programs at Pew Charitable Trusts:

"When my wife buys jeans, she doesn't get a rebate from Levi's or Lee, she just gets the net price," Cassidy said. "Why not have a low upfront price" for medicines?

"If your wife were buying tens of thousands of pairs of jeans, she would go to the manufacturer and say, 'I don't want to pay the list price,'" Coukell answered, explaining why the rebating system exists: PBMs, which consolidate negotiating power on behalf of large numbers of clients, can demand concessions that single buyers can't.

The Senate HELP committee touted Tuesday's hearing as a bipartisan endeavor, and drug pricing has been a key issue particularly among Democrats; however, many Democratic senators Tuesday focused instead on the lack of hearings about health reform, to the irritation of their Republican colleagues.

Some observers suggested this implies drug pricing legislation isn't a current priority for Congress.

"As evidence that drug pricing is on the backburner, ranking member Patty Murray focuses on GOP's ACA-repeal plan in her opening statement," Brian Rye, government policy analyst for Bloomberg Intelligence, tweeted during the hearing.


Democratic Senator Chris Murphy declined to ask any questions of the panel, instead following Democratic colleagues' lead on protesting the Republicans' handling of health reform.

"I hope eventually we can sit down and have a conversation of drug pricing that is meaningful and relevant," Murphy said. "But this is irrelevant… if 23 million Americans lose access to health insurance, they can't afford prescription drugs. So it doesn't really matter what we do."

Still, they'll have at least two more opportunities to home in on drug pricing. The next two hearings, said Alexander, will focus on the process of bringing drugs to market and how they're paid for, and a National Academy of Sciences project called "Ensuring Patient Access to Affordable Drug Therapies."

"Depending on what groups testify that hearing will likely have more fireworks," Cowen analyst Eric Assaraf wrote in a research note Monday, projecting a second hearing that could include representatives from the drug industry, PBMs and drug distributors.

The drug industry has long been concerned that government action on drug pricing would result in price controls that would cap industry profits. President Trump, before he took office, said a number of times he didn't understand why the U.S. doesn't negotiate on the price of drugs.

Tuesday's hearing implied the coming solution may not be quite so straightforward. Perhaps fitting, for such a complicated system.