Emmarie Huetteman and Jay Hancock

Kaiser Health News

Expect sparks to fly Tuesday as senators get a rare chance to grill the heads of seven major pharmaceutical companies under oath about the budget-busting prices of prescription drugs.

The Senate Finance Committee will host executives from Pfizer, Merck, AbbVie and other drugmakers. Committee Chairman Chuck Grassley, an Iowa Repubilcan, said he hopes the hearing will pull back the curtain on how drugmakers set prices – and how they justify the culture of secrecy surrounding those decisions.

Expect to hear more on the subject from the committee in the coming months, including inquiries to pharmacy benefit managers, as lawmakers seek legislation to ease health care costs. But first, here’s what you should know before the hearing.

1. Most lawmakers have taken money from drugmakers – including the senators on this committee.

Skeptics are quick to note that the pharmaceutical industry is among Congress’ most generous benefactors. In 2017 and 2018, members of the Senate Finance Committee received more than $2 million from political action committees associated with pharmaceutical companies, including the companies they will hear from Tuesday, according to a Kaiser Health News analysis.

Sen. Ron Wyden of Oregon, who has served as the committee’s most senior Democrat since 2014, including a stint as chairman, has received about $163,000 since 2007 from the drugmakers whose executives he will question, according to the KHN analysis.

Grassley, who regained the chairmanship in January after also serving in the post in the early 2000s, has received about $97,000 from those drugmakers since 2007.

Those numbers are relatively little by comparison with colleagues. In the last election alone, Democratic Sen. Robert Menendez of New Jersey – home to the headquarters of Johnson & Johnson and Merck, as well as Sanofi’s U.S. headquarters – received more than $154,000 from drugmakers' political action committees.

Campaign finance analysts caution against equating money given with votes bought. But large contributions can draw a politician’s attention and open doors when a company’s lobbyists come calling.

More:Democrats examine drug prices, a first step in Congress' path to cut prescription costs

More:Pharmaceutical industry's promises to cut drug prices have been heard before

More:Prescription drug prices kept rising in 2017, but greater scrutiny contained them a bit

2. Drug costs have been rising, but the facts are a little complicated.

Grassley talks about “skyrocketing prescription drug costs.”

PhRMA, the brand-name drug lobby, says “Retail medicine costs grew just 0.4 percent in 2017, the slowest rate since 2012.”

It is likely you’ll hear these statements again. Both are true. Neither tells the whole story.

Pharmaceutical companies have been raising prices for brand-name medicines for years. Prices for hundreds of brands rose by an average of 6 percent to kick off 2019, accoding to the consulting firm Rx Savings Solutions. Some went up as much as 9.5 percent.

Those are list prices. Drug companies often note that discounts and rebates reduce the net cost for insurers. But that's little comfort to the many patients whose out-of-pocket costs are a portion of the ever-increasing list price. They don’t get a rebate.

Drug costs have been rising at a much greater rate than inflation even after accounting for rebates and the effects of less expensive generics. Total retail prescription drug costs increased at an average annual rate of 5.2 percent during the five years ending in 2017, according to the Health and Human Services Department.

Total retail drug costs rose only 0.4 percent in 2017, according to HHS data. But they have grown just as slowly in the past only to take off again.

The HHS data does not measure the multibillion-dollar costs for chemotherapy, anesthetics and other drugs administered in hospitals. Total drug spending per hospital admission soared 19 percent from 2015 to 2017, according to a recent study sponsored by hospital trade groups. That’s an added burden on the system, and another source of drug-price pressure.

3. The highest-paid executive testifying made more than $22.5 million in 2017.

As heartbreaking stories of patients rationing costly but lifesaving medications have become more common, pharmaceutical company executives have come under fire for taking home millions of dollars every year.

Here's how much the executives testifying made in 2017, the most recent year for which data are available, according to total compensation figures in each company’s public filings:

► Richard A. Gonzalez, chairman and chief executive officer of AbbVie Inc., the maker of top-selling rheumatoid arthritis drug Humira: $22,625,243.

► Pascal Soriot, executive director and chief executive officer of AstraZeneca, which makes cancer, diabetes, and other drugs: £9,435,000 (about $12,300,000.)

► Giovanni Caforio, chairman of the board and chief executive officer of Bristol-Myers Squibb Co., which makes many cardiovascular, cancer and other drugs: $18,687,123.

► Kenneth C. Frazier, chairman and chief executive officer of Merck & Co. Inc., the company that makes the HPV vaccine Gardasil and the asthma medication Singulair, among other drugs: $17,643,087.

► Olivier Brandicourt, chief executive officer of Sanofi, one of the world’s largest drugmakers, which is known for producing vaccines, among other things: €9,754,318 (about $11,050,000).

► Albert Bourla, now the chief executive officer of Pfizer, made $8,836,301 in 2017, but he was not CEO at the time. He was then serving as group president of Pfizer Innovative Health.

► Compensation information from 2017 could not be found for Jennifer Taubert, executive vice president and worldwide chairman of pharmaceuticals at Johnson & Johnson. Taubert was promoted into her role overseeing pharmaceuticals in 2018.

4. Be skeptical of drugmakers’ claims that prices must stay high to pay for the next big cure.

For years, drugmakers have defended rising prices by arguing they need to defray the cost of research and development to produce future breakthroughs. They note that most drugs never reach the market. So, how much does it cost to develop a new prescription drug? About $2.6 billion, according to an oft-cited analysis released in late 2014 by the Tufts Center for the Study of Drug Development.

But critics have questioned that figure. They note the funding the center receives from the pharmaceutical industry; the secrecy surrounding the data, making the study unreplicable; and the inclusion of nearly $1.2 billion in foregone investment returns during development in that total, among other points.

As Kaiser Health News has reported, the companies’ own audited financial statements contradict the industry’s claims: In 2016, for instance, the top 10 publicly traded drugmakers in the United States saw a 27 percent pretax profit margin, even after sinking billions of dollars into advertising and sales.

It is also becoming increasingly common for drugmakers to acquire breakthrough treatments not through their own R&D but instead by purchasing smaller companies that have discovered a new drug. Pfizer, the biggest drugmaker in the world, owes much of its growth to this practice.

5. As the Trump administration shows interest in the issue, Congress is brainstorming.

Lawmakers already are touting a variety of legislative remedies – and, in a sign of how important drug costs are to voters, most of the proposals are sponsored by a presidential hopeful or two.

Many of the ideas are familiar. Some would allow the importation of drugs. One would require drugmakers to set prices no higher than they are in a handful of other developed nations. One of the most popular ideas would enable Medicare to negotiate drug prices.

Grassley, as the Finance Committee chairman, will likely play a key role in deciding what a solution will look like. He said last month he opposes government negotiations on drug prices. That aligns him with many Republicans and throws cold water on an idea many Democrats support.

Grassley introduced two bills in January with Democratic Sen. Amy Klobuchar of Minnesota, a 2020 presidential candidate. One would go after brand-name drug manufacturers that pay off generic drugmakers to stifle competition, and another would allow individuals to import drugs from Canada.

As the Trump administration works on its own proposals to lower costs, lawmakers are hopeful.

“There’s a sense that the moment is right and there’s support within the administration and the Congress for real action,” said Michael Zona, Grassley’s spokesman.

KHN data editor Elizabeth Lucas and data correspondent Sydney Lupkin contributed to this report.

Kaiser Health News (KHN) is a nonprofit news service covering health issues. It is an editorially independent program of the Kaiser F­amily Foundation that is not affiliated with Kaiser Permanente.