The three pharma CEOs who testified at last Thursday’s Senate hearing about high drug prices survived the meeting without making concessions on the cost of their medicines. The hearing itself, however, was just the latest in a string of policy setbacks for the life sciences sector.

Medicare drug price negotiations began this month for the first 10 treatments, marking a major component of the Inflation Reduction Act of 2022. The first of the industry’s lawsuits seeking to block the negotiation program, brought by AstraZeneca, is reportedly not going well. Nor was last week’s hearing, where several chief execs found themselves in the hot seat, a feel-good exercise. 

“The industry thought the IRA wouldn’t pass and then, when it did, they thought the worst was over from the Biden administration,” recalled Joe Grogan, a former pharma lobbyist and Trump advisor who’s now a non-resident senior fellow at the USC Schaeffer Center. “But the Biden team continues to target the industry both rhetorically and from a policy perspective.” 

In addition to the IRA, the administration has established an entirely new restricted coverage scheme on drugs for Alzheimer’s disease and entertained ways to expand the IRA. Meanwhile, the White House’s allies on the Hill have made the industry what Grogan called “a favored punching bag,” as demonstrated by the HELP Committee hearing.

Asked to comment, a spokesperson for the Pharmaceutical Research and Manufacturers of America (PhRMA) said the hearing was largely a distraction from the real issues.

“None of this is surprising. We’re in political season and people are looking for points to drive a political narrative,” said PhRMA EVP of public affairs and strategic initiatives Robby Zirkelbach, pointing to the 2024 election year. 

While the political theater has been “disappointing,” Zirkelbach said, “The real question is, Are we going to focus on the right solutions?”

But just what those solutions are — and whether the trade group is keeping its constituents focused on them — has come up for debate. 

Not your father’s PhRMA

It’s a vastly different health policy playing field than it was in 2009, when then PhRMA president and CEO Billy Tauzin and a handful of industry execs negotiated an $80 billion deal with the White House and Senate Finance Committee that included selling drugs at half-price to seniors in the Medicare Part D “donut hole” coverage gap. 

Other unfriendly policies mounting against the industry include the Federal Trade Commission’s decidedly antitrust posture vis-a-vis pharma M&A and the Biden administration’s recent proposal that high prices could spur the use of “march in” rights against government-funded drugs by the Fed.

Terry Haines, founder of Pangea Policy, recalled 2015 as the year things began to change. Presidential candidate Hilary Clinton kicked off the serious conversation about pricing and Medicare Part D when, during the run-up to the 2016 election, she suggested drug prices ought to be “regulated.” 

“A confluence of circumstances,” as Haines put it, led to the IRA’s passage in 2022. For the first time in many years, instead of being able to maneuver its way out of government threats, as pharma did during the Obama administration, there was “a very different world.”

“When you get something other than complete success, that’s a concern,” Haines said, referring to members of the trade association who grew accustomed to the industry fending off threats to its pricing power.

Notable defections

Since late 2022, signs of disaffection in the member ranks may have grown, too, with AstraZeneca, Teva and AbbVie all having left the group.

“Losing some members implies that there are companies who are seeing different challenges and who see their own business challenges as different enough that membership in a trade association doesn’t serve those needs anymore,” Haines said. 

Then again, seeing members come and go is “pretty standard in a trade association,” Zirkelbach countered.

“We added Gilead and Genentech [in 2019], and in December announced the addition of Genmab. We expect more,” he said. 

“I wouldn’t read too much into it,” he added of last year’s turnover. “We have a very strong board who’s engaged in our work and supportive of the association, and that’s reflected in the work we do.”

Nevertheless, policy experts are raising questions about whether the industry’s main lobbying group can keep its constituents united during a tough time ahead. 

“To me, that’s the biggest signal that there may be some issues: That at least some of the constituents aren’t seeing value,” said Ellen Licking, VP of communications and consulting services for Real Endpoints.

From Licking’s perspective, it’s been harder for members, the general public and lawmakers to rally around the trade group’s central message now than, say, during the era of the Affordable Care Act (ACA). 

“As it relates to the ACA, PhRMA had a simple message: It was about expanding access to care for patients,” she explained. “That’s not a message that many people would disagree with.”

Contrast that with the run-up to the IRA’s passage, where PhRMA pointed out the misaligned incentives in the system and the intermediaries, such as pharmacy benefits managers (PBMs), who potentially take a lot of the value.

“We can debate and armchair quarterback whether industry did enough ahead of the IRA on that front,” said Licking. “But it’s also important to remember that it is a complicated argument to try and unpack. It’s clear our legislators don’t fully understand all the misaligned incentives in the system.”

Indeed, she added, it’s hard to have a conversation around gross price versus net price and why products can have high list prices and cost less even though those costs are not passed onto consumers. 

While there’s been much finger-pointing at PBMs, Licking said that “the truth is that employers and health plans also like the rebates they get as result of the negotiations the PBMs make — and they’re doing that for the broader issue, which is to keep premiums and costs we as consumer pay for insurance lower.”

In fact, one reason calls for PBM reform have grown louder since the IRA passed, Licking explained, is that “there’s been greater awareness that, for the consumer at least, the IRA doesn’t solve a lot of the problem in terms of the cost of healthcare.”

After all, the negotiation program potentially addresses some issues for Medicare patients but not for those on commercial insurance. Nor is it clear just how much savings will accrue for that first tranche of drugs.

Rather than tie the IRA’s passage to some existential puncturing of PhRMA’s “aura of invincibility,” as another publication put it in 2022, Licking said, “I look at the whole issue of price negotiation as ‘we’ve hit a tipping point,’ especially with the rise in specialty drug trend over the past several years.” 

Expensive healthcare dominates

Still, even among myriad other healthcare issues — hospital costs, a byzantine insurance structure, unnecessary tests and procedures, discontinuities in clinical care — the issue of rising healthcare costs rings loudest. 

“At 18% of GDP, healthcare costs represent a huge burden to the public and to the government through Medicare, Medicaid and the VA system,” said Jon Bigelow, president of Thayer Pond Solutions and a former executive director of the Coalition for Healthcare Communications. Pharma costs are in the range of 11% of that total.

With more expensive new gene therapies on the way — not to mention the widespread use of weight-loss agents and the prospect of more effective treatments for Alzheimer’s disease — these costs are set to rise much further. Meanwhile, Bigelow said he views the IRA program, as enacted, as having a “fairly modest” impact on pharma. There are limits in the price of insulin (but only for Medicare patients) as well as excise taxes if drug prices rise faster than the rate of inflation (again, only within Medicare).

Even the requirement that pharma negotiate prices with the government is limited in scope and excludes launch products. “All of this has been bitterly fought by PhRMA leadership, tossing around over-the-top claims that Medicare negotiation represents ‘nuclear winter’ for the industry and would severely impede innovation,” Bigelow added. “But more impartial analyses, such as by CBO, show this is greatly overstated. History shows the industry can adjust.”

Nor is the litigation against Medicare negotiation a sound strategy, Bigelow advised: “I expect they’ll lose in the courts and there is zero chance of repealing Medicare price negotiations in the next Congress regardless of who is elected president.”

‘The PhRMA policy strategy is failing’

All the while, the industry is being tarred as the enemy — highly profitable yet always wanting more, despite the impact on patients and the country.

“Pharma’s lobbying effort is, in effect, challenging Congress to call CEOs in for adversarial hearings, and setting themselves up as the villains in campaign ads,” Bigelow warned. “I believe the PhRMA policy strategy is failing.”

The group, he suggested, should be doing more to present the industry as part of the solution. 

Recalling the 2009 negotiations architected by PhRMA’s Tauzin, Bigelow noted that, by agreeing to various compromises over a period of years, pharma “was no longer the enemy; they were no longer on the firing line in Congressional debate.”

Indeed, in the wake of the passage of the ACA, pharma enjoyed a period of relative calm in terms of cost-constraint initiatives. Moreover, by widening health insurance to 25 million Americans, the ACA expanded the market of individuals who could afford to fill prescriptions, easily offsetting the cost of drugmakers’ contributions. 

Bigelow drew a parallel to last year’s move by insulin manufacturers to extend the $35 out-of-pocket limit to non-Medicare patients, one which did pharma’s public image a service. 

“So now, why not reduce the noise level, negotiate the Medicare prices in good faith and take credit for it?” he asked. 

Doing so might not only make it easier for the Centers for Medicaid and Medicare Services to approve coverage for future Alzheimer’s drugs and other expensive new products. It could also shift the narrative from one of bankrupting the federal program to one of “recognizing the fiscal realities,” Bigelow noted.

PhRMA needs PR

Zirkelbach, for his part, said PhRMA is leveraging communications to highlight pharma’s role as an innovator creating drugs that can lead to broader savings in the healthcare system by improving overall health. One such effort is Voters for Cures, the trade group’s initiative aimed at engaging voters in such conversations.

In terms of justifying its PR efforts around PBMs, Zirkelbach acknowledged, “The reality is, you can’t address the concerns that people have with the price of medicines if you ignore where half of the money is going.” This implies that just half the money spent on drugs is left for other stakeholders.

“There’s a lot of rebate and discount that’s happening,” he added. “It’s just not going to patients. And so there’s a reason that patients are frustrated, and we think we should address it.” 

As far as the IRA is concerned, PhRMA’s agenda will continue to focus on making the law more palatable and trying to roll back price negotiation (or, as PhRMA terms it, price-setting). 

In fairness to drugmakers, the industry is supportive of some elements of IRA, such as an out-of-pocket cap and having provisions that allow cost to be spread out over patients.

However, Zirkelbach said, “putting in the arbitrary price-setting regime is not the right approach because of the disincentive that it’s going to have, particularly for small-molecule medicines that are so important for diseases like cancer, mental health and other disease areas.”

Addressing what PhRMA calls the IRA’s “pill penalty,” in which price negotiations kick in at nine years for small molecules versus 13 years for biologics, remains high on the policy agenda. 

Lawmakers from both parties have acknowledged this as a problem. Other activities will be directed toward justifying M&A in the face of mounting FTC challenges and raising awareness of the large discounts pharma companies extend to hospitals under the 340B Drug Pricing Program.

“Again, 340B is a similar type of story involving the huge amounts of money that our industry is giving other entities in the system that’s not going to actually lower what patients pay,” he said.

Furthermore, Zirkelbach added, “multiple elements of our ecosystem appear to be under attack,” from the intellectual property system to the market-based system in which competition and negotiation help to bring down cost. “We need to make sure there’s a better awareness and understanding of how our system works and why we need to protect and build on it so that we can actually continue to take advantage of the incredible science that we’re seeing right now.”

In terms of spending, PhRMA’s contributions to political action committees so far in the 2024 election cycle are comparable to its contributions during the 2022 presidential elections. Although, according to OpenSecrets.org, while PhRMA upped its annual overall lobbying spend by $5 million last year, the group fell two spots — from third place to fifth — on the list of the biggest spenders, having dished out $27.6 million.

Surviving the times

In the face of these threats, however, Grogan believes that the industry has engaged in “too many tactical and too-cute-by-half policy suggestions while the ground beneath them shifted.”

The country and both major political parties are more populist than in the past, he explained. Also, since neither presumptive presidential candidate is likely to be pharma-friendly, PhRMA “needs to fundamentally shift the narrative from ‘greed’ to American dominance in pharmaceutical innovation.”

At the same time, he suggested, industry has to come up with policies that address affordability so that all Americans can access needed medications without making painful tradeoffs. 

“Where’s the next big idea like Bayh-Dole or Hatch-Waxman?” asked Grogan. “Those policies worked as intended, but now we are on the cusp of sacrificing American medical innovation because we can’t come up with a reasonable plan to restore sanity to America’s drug pricing regime.”

Haines agreed that the industry should operate more proactively. 

“I don’t think they’ve made the case — maybe in Washington but not to the broader public — that pricing, the way that the Biden administration intends to go about it, is a good or bad thing,” he said. “The industry must break through to the public more about the detriments in the way the Biden people rolled this out over the first few months.”

With Medicare price negotiation for the first cycle of drugs set to culminate in a projected final pricing decision announcement in September, pharma companies will have an opportunity to educate the public and, as a result, create more of a favorable playing field for themselves.

PhRMA has benefited from having strong industry support. However, going forward, a trade group can only do as much as its members are willing. 

“Fundamentally, it’s incumbent on membership to figure out what the tip of the spear is for it and whether and to what extent they can continue to go forward united as an industry,” Haines said. 

“Over the last 10 months of this year, they will find themselves challenged as they haven’t been before,” he added. ‘It will be incumbent on members to try and springboard off what happens between now and the end of the year that will keep them as united as possible. Because that’s their best chance of success.”

This story has been updated with lobbying spending figures.