Pharma’s turn

‘It’s finally pharma’s turn’: Drug CEOs face Capitol Hill reckoning

Seven drugmakers will be grilled over high prices at a hearing this week, in what could be a watershed moment for the industry.

By SARAH KARLIN-SMITH

Pharma executives are facing a Capitol Hill grilling on high drug prices Tuesday — bringing them into the same politically treacherous ground as tobacco and tech leaders before them.

The Senate Finance Committee hearing is an ominous signal for the drug industry that major legislative reform is on the horizon. It’s reminiscent of previous hearings with businesses that proved to be turning points, leading to massive reforms of Wall Street banks, the health insurance industry and tobacco companies.

And given the growing bipartisan and public anger over drug prices, the seven executives slated to testify will try to strike just the right note of contrition — while boasting that their products save lives. They will also seek to shift the blame for high prices to other parts of the health care industry, from doctors and hospitals that profit from administering the drugs to the pharmacy benefit managers who serve as middlemen in the opaque drug supply chain.

“It’s finally pharma’s turn,” said Chris Jennings, who worked on health policy in both the Clinton and Obama White Houses.

“I think the Hill is starting to feel like they have to do something,” Jennings said. He added that if lawmakers fail to act after talking so much about the problem, “it would really undermine any sense that Congress can ever do something, particularly at a time when you have a Republican president giving a lot of coverage for doing something significant.”

President Donald Trump has been persistent on the drug pricing issue, directing his health agency to craft proposals — including some that Republican lawmakers have decried, like tying some Medicare drug payments to the lower prices charged for medicines overseas. Democrats, meanwhile, are pushing stronger government controls, like Medicare negotiations, that are broadly popular but fervently opposed by Republicans.

The industry is aware of the high stakes, and it is ready, drug company employees and lobbyists told POLITICO. Most of the seven drugmakers called to testify Tuesday are employing a range of outside help, from law firms to lobbyists to communications experts to prepare their leadership for the spotlight.

“It’s definitely a big deal,” one drug industry lobbyist said. “Companies have hired up lots of lawyers and CEOs are anxious.”

The companies have also taken note that the hearing wasn’t initiated by traditional Democratic pharma critics in the House, but by the Republican chairman of the powerful Senate Finance Committee, Chuck Grassley — who weeks ago lashed out at drugmakers for refusing an earlier invite to testify.

While a handful of drug industry CEOs have faced the wrath of lawmakers in recent years, those hearings have tended to focus on easy scapegoats like Martin Shkreli, the now-imprisoned biotech CEO who infamously jacked up the price of an infectious disease drug by more than 5,000 percent overnight, or Heather Bresch, whose company increased the price of the lifesaving EpiPen allergy treatment by 500 percent.

But now it’s the big household names, like Pfizer, Johnson & Johnson and Merck, in the hot seat facing an increasingly hostile Congress.

The deep-pocketed drug industry could for years safely count on Republican allies to hold off major reforms, but that support is weakening after years of consumer outrage and largely Democrat-led attacks on drug prices. Trump, his health department and Congress are now closing in on the industry.

Grassley is considered one of the industry’s most formidable Republican critics. His ascension to the chairmanship represents a new shift for the Finance Committee, which was last helmed by pharma defender Orrin Hatch before his retirement.

“The hearing demonstrates something of a political sea change in the willingness of members of Congress to really put pressure on big pharmaceutical manufacturers to become part of the solution and to answer for some of their anticompetitive and patent abuse tactics,” said Jon Conradi, a former Republican Hill staffer and spokesperson for the Campaign for Sustainable Rx Pricing, a coalition of physician organizations, hospital associations, health plans and other business groups.

Tuesday’s hearing won’t just be a one-off chance for lawmakers to harangue pharma executives. Grassley and Ron Wyden (D-Ore.), the committee’s top Democrat, on Friday announced they opened a probe into soaring insulin prices, which another House panel is also investigating. The House Oversight Committee has also demanded drug pricing documents from 12 companies.

“You have ranking members and chairman from both parties and both chambers rushing to hold hearings on the issue of prescription drug pricing and get on record saying that the prescription drug companies need to be part of the solution,” Conradi said.

Republicans know their weakness on health care, including drug pricing, was one reason they lost the House in 2018, a Republican health policy expert said. By acting on drug prices this year, the expert said, Republicans may “blunt Democrats’ ability to clobber them on health care again.”

The drugmakers, for now, are mostly laying low. Of the seven companies testifying Tuesday, only Sanofi agreed to speak with POLITICO ahead of the hearing.

Executives from Abbvie, AstraZeneca and Bristol-Myers Squibb will also take the witness stand.

Sanofi CEO Olivier Brandicourt doesn’t intend to point fingers, but he will argue that drug manufacturers aren’t the driving factor behind high prices, spokesperson Adam Gluck said. For instance, he said Brandicourt will emphasize that the rebate system overseen by pharmacy benefit managers – who take a cut of discounts they negotiate for insurers and employers — are pushing up list prices on insulin and other treatments. That’s a complaint often made by the Trump administration, which has proposed overhauling the rebate system.

Brandicourt will highlight the company's coupon programs that help patients afford insulin, along with its promise to keep price increases in line with national health spending growth. He’ll also testify about specific examples in which he said the company set prices to improve patient access, such as the skin disease treatment Dupixent. The treatment approved in 2017 carried a $37,000 annual list price at its launch, which isn’t cheap, but still less costly than some similar medications. Brandicourt will contend that health insurers have made it harder for patients to access drugs through co-pays and other barriers.

The executives will also likely argue that drug costs represent just 15 percent of health spending, said one drug industry policy expert whose company isn’t testifying. They could also point to rising health care costs in other areas, including the problem of surprise medical bills that’s getting greater bipartisan attention.

Analysts said drugmakers must be careful about how they discuss other parts of the health care system because they could anger lawmakers if they appear to be deflecting all the blame. One frequent industry defense, that high prices are justified by the large sums drugmakers spend on research, could invite pushback from lawmakers. That’s because drugmakers spend just a small portion of revenue on research and development, and innovation has slowed.

Members of the Senate panel are already signaling they’ll have little patience for drug executives who don’t give straight answers.

“The CEOs would be wise to be attending the hearing form a very earnest perspective,” one Republican committee aide said.” It will go south for them really quickly if they’re not trying to be helpful and forthright in their answers.”

Senators say they’re ready to refute industry arguments that other parts of the health care system are to blame. Sen. Bill Cassidy (R-La.) will hit drugmakers for delaying cheaper generic competition by abusing the patent system, an aide said. He also will highlight how drug companies have discouraged insurers from using cheaper versions of expensive biologics by providing greater discounts on branded products.

Sen. Sherrod Brown (D-Ohio), a potential 2020 presidential contender, will call out companies for charging higher prices in America than they do in other countries, even though the U.S. government disproportionately subsidizes drug research.

But the real test of lawmakers' willingness to take on pharma will come after the hearing, pharma critics said.

“I expect both Democrats and Republicans to talk tough on camera because pharma is deeply unpopular,” said Shawn Gremminger, head of federal relations at the left-leaning Families USA. “But just because they talk tough on camera doesn’t mean they will be tough behind closed doors.”