Aug 5, 2022

Pharmaceutical Industry Attempts to Intimidate Lawmakers and Keep Prices High by Re-Upping False Claims, Blame Game and Discredited Innovation Rhetoric

On Thursday, the Pharmaceutical Research and Manufacturers of America (PhRMA) sent a letter from the organization’s board of directors in a last-minute bid to intimidate lawmakers into voting against drug pricing solutions included in the Inflation Reduction Act of 2022.

The letter rehashes a laundry list of the industry’s favorite, and repeatedly debunked, arguments. Below, we look at claims in the letter and set the record straight.

PhRMA’s Claim: “This bill will not provide relief for families struggling with inflation or help the average American patient afford their medicines.”

The Truth: Big Pharma’s latest messaging gimmick, the subject of a recent ad campaign, is to claim out-of-control prescription drug prices are not fueling inflation. The facts are clear however, Big Pharma’s price hikes have consistently outpaced inflation and caused rising costs for consumers.

  • A recent analysis from the Kaiser Family Foundation(KFF) found Big Pharma hiked prices faster than the rate of inflation on 23 of the top 25 most popular prescription drugs in the Medicare Part D program in 2020. Big Pharma’s faster-than-inflation price hikes included all three of the top drugs for highest gross spending in the Part D program, Eliquis, Revlimid and Xarelto. Drug companies’ price hikes also outpaced inflation on 16 of the top 25 best-selling drugs in the Medicare Part B program.
  • The analysis also found drug prices for half of all drugs covered by the Medicare program increased faster than the rate of inflation between 2019 and 2020, including half of all drugs covered in Medicare Part D (50 percent of 3,343 drugs) and nearly half of all drugs covered in Part B (48 percent of 568 drugs). Among drugs covered by Part D with price hikes exceeding inflation the median increase was 5.6 percent, and among those covered by Part B the median increase was 5.4 percent.
  • A 2021 report from AARP Public Policy Institute found that between 2019 and 2020, retail prices for 260 widely used brand name prescription drugs increased by 2.9 percent, more than two times faster than general inflation (1.3 percent).
  • A separate report from AARP Public Policy Institute found that total Medicare Part D spending on 50 top brand-name drugs was $38 billion higher between 2015 and 2019 than it would have been if drug manufacturers had not increased their prices faster than the corresponding rate of inflation.

The facts are also clear on the positive benefits of key drug pricing solutions included in the Inflation Reduction Act for American patients and taxpayers. For example, the nonpartisan Congressional Budget Office (CBO) estimates policy to keep Big Pharma’s price hikes below the rate of inflation will save taxpayers $100.7 billion over 10 years and help disincentivize rampant price-gouging of American patients. In reviewing a previous iteration of this policy, CBO also said it could have a positive impact on lowering drug prices in the commercial market.

In addition, the $2,000 out-of-pocket cap in the bill is estimated to impact 1.4 million Medicare Part D beneficiaries.

PhRMA’s Claim: “While the bill saves the federal government $300 billion, it takes far more from the biopharmaceutical industry and will have significant consequences for innovation and patients’ hope for the future. Some economists estimate upwards of 100 new treatments may be sacrificed over the next two decades if this bill becomes law.”

The Truth: For far too long Big Pharma has used the excuse that research and development (R&D) costs justify out-of-control prescription drug prices and that solutions to lower prices threaten innovation into new breakthroughs. These tired arguments, which Big Pharma wields like a shield to protect the industry’s anti-competitive and price-hiking practices, simply don’t hold up to scrutiny.

Multiple studies have found Big Pharma’s price hikes have little to no connection to the cost of its development or improvements in drugs’ efficacy. In other words, brand name drug companies set launch prices and hike prices to maximize profits — not because there is any connection to innovation.

  • “A Drug’s Sunk R&D Costs Do Not Influence Its Price.” A 2021 report from the Congressional Budget Office (CBO) found that pharmaceutical R&D costs do not have a relationship to the prices drug companies set on their products. The report concluded, “Importantly, when drug companies set the prices of a new drug, they do so to maximize future revenues net of manufacturing and distribution costs. A drug’s sunk R&D costs—that is, the costs already incurred in developing that drug—do not influence its price.” (“Research And Development In The Pharmaceutical Industry,” Congressional Budget Office, April 2021)
  • Big Pharma’s Unjustified Price Hikes On Just Seven Popular Drugs Cost American Taxpayers $1.2 Billion In Increased Costs. An analysis conducted by the Institute for Clinical and Economic Review (ICER) found that drug companies hiked prices on seven popular drugs in 2019 with no evidence that the drugs had been improved. These price hikes included AbbVie, which increased the price of its best-selling rheumatoid arthritis drug Humira by 6.2 percent, Johnson & Johnson, which increased the price of schizophrenia medication Invega Sustenna by 10.7 percent, and Bristol-Myers Squibb, which increased the price of rheumatoid arthritis drug Orencia by 7.4 percent. (“Unsupported Price Increase Report,” ICER, January 12, 2021)
  • Just Six Percent of Drug Patents in Infringement Suits Were for Active Ingredients or New Molecules. An analysis conducted in Nature Biotechnology examined 21 patent infringements lawsuits pursued by pharmaceutical companies on biologic drugs under the Biologics Price Competition and Innovation Act (BPCIA), covering a total of 179 patents. Of the patent filings examined in the study, just six percent were for active ingredients or new molecules. The vast majority were for secondary uses – oftentimes for much less critical changes to the drugs or their manufacturing process, with little to no innovation involved that might improve clinical value for patients. (“The Characteristics of Patents Impacting Availability of Biosimilars,” Nature Biotechnology, January 18, 2022)

In addition, contrary to the industry’s insistence that out-of-control prices support costly investments in R&D, the facts shows that brand name drug companies invest more boldly in advertising, profits and overhead than innovation and R&D.

  • $56 Billion: A 2021 report from the House Oversight Committee found that over the last five years, the top 14 drug companies spent almost $577 billion on stock buybacks and dividends – $56 billion more than on research and development during that same time span. (“Drug Pricing Investigation: Industry Spending on Buybacks, Dividends, and Executive Compensation,” S. House Committee On Oversight and Reform Staff Report, 7/8/21)
  • $3.9 Billion: Big Pharma companies spent $3.9 billion on TV ads in 2021, according to ad tracker (Beth Snyder Bulik, “Pharma Brands Spent $$3.9B on TV Ads In 2021,” Endpoints News, 1/11/22)
  • 2X: A 2019 study from CSRxP and GlobalData found Big Pharma invests more than twice as much in advertising, profits and corporate overhead than R&D. (“Big Pharma: Investing Boldly In Advertising And Profits, Not R&D,” The Campaign for Sustainable Rx Pricing, May 15, 2019)

And while Big Pharma tries to obfuscate their out-of-control list prices by invoking “innovation,” the industry has gotten a huge boost in recent years from taxpayer dollars in the form of taxpayer-funded research at the National Institute of Health (NIH).

  • The U.S. taxpayer has funded research for every single one of the 210 new drugs that the FDA approved between 2010-16. Yet the companies that have access to this research are increasingly viewing pharmaceuticals in the same way that banks view their financial product — opportunities for short-term returns.” (Mariana Mazzucato, “Big Pharma Is Hurting Drug Innovation,” The Washington Post, 10/17/18)
  • More than $100 billion in NIH funding went toward research that contributed, either directly or indirectly, to the 210 drugs approved between 2010 and 2016. That’s roughly 20 percent of NIH spending since 2000.” (Megan Thielking, “NIH funding contributed to 210 approved drugs in recent years, study says,” STAT News, 2/12/18)

Little surprise, PhRMA also utilized data from a researcher with long-established financial ties to the pharmaceutical industry to claim new medications could be threatened by drug pricing solutions in the Inflation Reduction Act.

The researchers cited by PhRMA, is Precision Health Economics. “About 75 percent of publications by [Precision Health Economics] employees in the past three years have either been funded by the pharmaceutical industry or have been done in collaboration with drug companies,” according to reporting from ProPublica.

“Critics have at times questioned the assumptions underlying the consultants’ economic models, such as the choice of patient populations, and suggested that some of their findings tilt toward their industry clients,” the ProPublica report. “For example, some have tried and failed to reproduce their results justifying the value of cancer treatments.”

PhRMA’s Claim: “Changes that would have a more immediate, meaningful impact at the pharmacy are missing from the bill…it further delays a policy – the rebate rule – that would immediately lower costs for millions of seniors at the pharmacy counter.”

The Truth: PhRMA is employing one of the industry’s favorite tactics whenever they face solutions that would hold Big Pharma accountable on Capitol Hill – the blame game. The Rebate Rule is a key policy component of Big Pharma’s blame game strategy of dodging accountability for the industry’s egregious pricing practices and pointing a finger at others in the supply chain.

The Rebate Rule, if implemented, would do nothing to lower prescription drug prices, would hike health care premiums on America’s seniors, would cost taxpayers $200 billion and could even increase out-of-pocket costs.

Here are the facts on the Rebate Rule:

The rule would do nothing to lower out-of-control prescription drug prices:

  • Do Nothing To Lower Out-Of-Control Prescription Drug Prices: Government actuaries predict drug manufacturers will keep at least 15 percent of what they would have offered in rebates, to offset their increased share of covering the Medicare Part D “donut hole” as outlined in the Bipartisan Budget Act of 2018. Further, actuaries forecast drug prices increasing before finally leveling off, but do not foresee prices decreasing. (Center For Medicare & Medicaid Services Office Of The Actuary, Memo On Proposed Safe Harbor Regulation, 1/31/19)

It would increase premiums for Medicare Part D beneficiaries:

It could even increase Part D beneficiaries’ out-of-pocket costs:

  • Increase Out-Of-Pocket Costs For Medicare Part D Beneficiaries: While there is widespread agreement the Rebate Rule would increase premiums, there is also the potential it would also increase out-of-pocket costs. In fact, analysts at Avalere Health found the Rebate Rule could increase out-of-pocket costs for Medicare Part D beneficiaries by as much as $36.5 billion. (Avalere Health, Costs for Taxpayers Could Skyrocket Under Proposed Rebate Rule, 4/8/19)

Its implementation would cost taxpayers at least $200 billion in increased spending:

And it would hand the pharmaceutical industry a more than $130 billion bailout in boosted revenues:

  • Hand Big Pharma A $137 Billion Bailout – Rewarding Drug Companies’ Price Hikes And Anti-Competitive Tactics: Government analysis finds that under the rule, Big Pharma will keep the dollars they currently pay in rebates and use the rule as an opportunity to line their own pockets with an increased $137 billion in overall drug spending – a bailout rewarding their anti-competitive and price-gouging behavior — at a time when the industry is already receiving billions of dollars in support for research and development of COVID-19 treatments and vaccines. (Center For Medicare & Medicaid Services Office Of The Actuary, Memo On Proposed Safe Harbor Regulation, 1/31/19)

PhRMA’s Claim: “This lack of real affordability gains is reason enough to vote against this bill. But so is the assault on innovation.”

The Truth: PhRMA and its allies claim drug pricing solutions are tantamount to an “assault on innovation” but, in addition to the points made above, a series of reports from the U.S. House Committee on Oversight and Reform found that Big Pharma’s price hikes and pricing practices were tied to executive compensation benchmarks and earnings targets, and had little if nothing to do with clinical improvements.

  • “Ten Companies in the Committee’s Investigation Paid Their Top Executives More Than $2.2 Billion From 2016 to 2020, Including $797 million in Chief Executive Officer (CEO) Compensation. 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 Pricing Investigation: Industry Spending on Buybacks, Dividends, and Executive Compensation,” S. House Committee On Oversight and Reform Staff Report, 7/8/21)
  • “Internal Communications Show That Pricing Decisions By Amgen Executives—Including Executive Vice President Anthony Hooper—Were Driven Primarily By The Need To Meet Increasingly Aggressive Revenue Targets.”(Staff Report, “Drug Pricing Investigation: Amgen – Enbrel And Sensipar,” S. House Committee On Oversight And Reform, 10/1/20)

Lawmakers should reject Big Pharma’s debunked and hyperbolic rhetoric and deliver on longstanding promises to hold the pharmaceutical industry accountable to lower prescription drug prices for the American people.

Read more on why Big Pharma’s claim that lowering prescription drug costs will undercut innovation is bogus HERE.

Read more on why Big Pharma’s latest round of advertising opposing drug pricing solutions doesn’t hold up to scrutiny HERE.

Read about Big Pharma’s most recent major round of price hikes, including more than 100 increases on brand name drugs in the first week of July 2022 HERE.

Learn more about solutions to hold Big Pharma accountable and lower prescription drug prices HERE.