Outrage of the Month: Big Pharma’s “Unsustainable, Unjustified and Unfair” Business and Pricing Practices

Health Letter, February 2022

By Michael Carome, M.D.

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If you’re not outraged,
you’re not paying attention!

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Image: oversight.house.gov

In December 2021, the U.S. House of Representatives’ Committee on Oversight and Reform issued a final report documenting its three-year investigation into the business and pricing practices of the pharmaceutical industry. The investigation, launched in January 2019, focused on ten drug companies marketing 12 brand-name products that are among the costliest to the Medicare program.

Unsurprisingly, the House report documented a wide range of egregious business and pricing practices that have resulted in ever-increasing price gouging of American consumers and the Medicare program by Big Pharma.

First, drug companies over several years have repeatedly raised prices on existing drugs to meet revenue targets. As a result, among the 12 drugs examined during the Committee’s investigation, prices have increased by a median of nearly 500% above the prices when the medications were first brought to market. In one case, the price has increased more 100,000% since it was initially launched. Internal documents obtained by the Committee demonstrated that net prices collected by drug manufacturers after accounting for rebates and other discounts increased annually for nearly all drugs examined in the investigation.

Second, all ten companies in the Committee’s investigation have implemented senior-executive compensation practices that directly link incentive payments to revenue and other financial targets, including drug-specific revenue targets in many cases. Thus, senior company executives reap huge financial rewards by jacking up their drug prices. Based on these incentives, the companies doled out more than $2.2 billion to their top executives from 2016 to 2020, including nearly $800 million to their chief executive officers. One former drug company CEO was paid more than $500,000 in bonuses in 2016 and 2017 solely because of price increases for a single cancer drug.

Third, drug companies use patents and other monopoly protections granted by the Food and Drug Administration to block competition from generic-drug companies and maintain high prices. For the 12 drugs examined by the Committee, the ten companies collectively obtained more than 600 patents, potentially expanding their periods of monopoly protection by a combined total of nearly 300 years.

Finally, all ten companies in the Committee’s investigation used one or more strategies to stifle generic-drug competition and maintain exorbitant prices. Examples of such practices include encouraging doctors to shift patients to new products or formulations of a drug just before generic versions of older formulations enter the market; pursuing contracts with health insurers and pharmacy benefit managers that offer rebates and discounts provided that competitor products are excluded from coverage; and aggressively marketing directly to physicians and patients to increase sales, particularly when drugs faced generic competition.

The House report appropriately concluded that the “pricing practices uncovered by the Committee’s investigation are unsustainable, unjustified, and unfair to patients and taxpayers. In addition to straining the [U.S.] health care system, drug companies’ pricing practices have left millions of Americans unable to afford lifesaving medications.”

Most patients in the U.S. are justifiably outraged by Big Pharma’s limitless greed and want to see Congressional legislation that prohibits the anticompetitive business practices documented in the House report. Neither consumers nor the U.S. government can afford business as usual by Big Pharma.