The current structure of reimbursement for drugs in the U.S. is “regressive” and ultimately hurting patients, a group drug company executives said Tuesday at a Senate hearing.
Kenneth Frazier, CEO of Merck, told members of the Senate Finance Committee during a widely anticipated hearing that the current system—in which pharmacy benefit managers and insurers negotiate rebates with drugmakers that are based on list price—punishes drug companies that set lower list prices.
“Today, the goal is paying into the supply chain the biggest rebate and that actually puts the patient at the disadvantage,” Frazier said. “The list price is actually working against the patient.”
The current system is, Frazier said, “the biggest problem that we have as a country” because it is designed so “the poorest and the sickest are subsidizing others.”
He was speaking as part of the closely watched hearing in which the drug industry was largely expected to point to other players, such as pharmacy benefit managers and insurers, rather than themselves as drivers of costs in the pharmaceutical market.
Seven executives representing the largest drug companies—including Merck, Pfizer and AstraZeneca—testified at the hearing Tuesday. A central throughline in the discussion is the role of insurers and PBMs in negotiating price and the role they play in increasing costs. The health insurance industry was not represented at the hearing.
The executives unanimously said they supported eliminating the rebate system—which has been proposed by the Trump administration through eliminating legal protections for drug rebates—alongside backing greater transparency and a focus on outcomes-based pricing. The White House, as part of its broader efforts to lower drug costs, has proposed ending legal protections for the rebates in Medicare Part D and instead extending them to pass-through discounts.
Albert Bourla, Ph.D., CEO of Pfizer, said that the end of rebates would lead directly to lower list prices, and lower costs for patients with high cost-sharing in the form of coinsurance and or high deductibles.
“This is a significant win, even if we don’t move to commercial, which I overwhelmingly support,” Bourla said. “I think it’s a significant win for the American people if we do it in Medicare only.”
Bourla said the number of incentives tied to list prices creates a “hydraulic effect” to price fluctuation. But the executives said that they could not simply unilaterally lower list prices with the rebate system still in place, as that would put their companies at a competitive disadvantage, costing them potentially significant revenue and placement on formularies.
PBMs and insurers have been under fire in the ongoing debate around drug prices, and pharmaceutical companies have been quick to deflect blame to these middlemen in the system.
Ahead of the hearing, the Pharmaceutical Care Management Association, the PBM trade group, issued a statement saying that competition is the key to driving down prices—and PBM negotiations are crucial to driving that competition.
“PBMs are the primary advocate for consumers in the fight to lower prescription drug costs. By leveraging marketplace competition, PBMs effectively negotiate savings that are used to lower enrollee premiums and reduce costs for consumers at the pharmacy,” CEO JC Scott said. “Access to medical innovation is essential for America’s patients, but there is no access without affordability.”
Insurers have also warned that eliminating the rebates could lead to other issues in Part D, such as higher premiums. Insurers and PBMs typically apply rebates across their membership to bring down premiums and costs instead of offering the discounts upfront at the pharmacy counter.
Ahead of the rule, which was released in January but sat at the Office of Management and Budget for months, some insurers, including big names like CVS Caremark and Aetna, took steps toward a direct discounting model instead of waiting for the Department of Health and Human Services to mandate it.
In a statement, Matt Eyles, president of America's Health Insurance Plans, said the hearing amounted to the pharmaceutical industry continuing to play the blame game. AHIP "appreciates" that the executives said they were open to working with payers on this issue.
“But we still heard much more from Big Pharma about casting blame on others for high prices," Eyles said. "Drug makers alone set drug prices, they alone increase prices, and they alone could decide to reduce drug prices."
Pascal Soriot, executive director and CEO of AstraZeneca, disputed claims that drug companies are engaged in finger-pointing on the issue and said instead that they’re trying to drive the conversation toward a collective solution that brings together all parts of the supply chain.
"I really don’t think we’re blaming anybody in the system,” he said. "I think ... we are in a system that used to be fit for purpose and drove enormous savings, but is no longer fit for purpose.”
A more transparent system can also help patients make more appropriate decisions for themselves, and provide additional choice, Frazier said.
"One of the keys about transparency is it empowers patients, and it empowers other payers, to think about which of those two medicines makes the most sense," Frazier said.
A video of the full hearing is embedded below: