House Oversight Committee criticizes drugmaker stock buybacks; says Medicare should have negotiating power

Photo: Drew Angerer/Staff/Getty Images

The House Oversight Committee released a report this week criticizing drugmakers’ stock buybacks, finding that 14 large pharmaceutical companies spent roughly $577 billion on such buybacks and dividends from 2016 to 2020.

The report from House Democrats is timely given that Congress is currently considering whether to allow Medicare the power to negotiate for lower drug prices. Lawmakers could vote on the issue soon as part of a larger infrastructure bill set to go before Congress.

H.R. 3, the Elijah E. Cummings Lower Drug Prices Now Act, would empower Medicare to negotiate directly with drug companies. The Congressional Budget Office estimates that the bill’s negotiation provisions would save taxpayers $456 billion over 10 years.

The billions that leading drug companies spent on buybacks and dividends is $56 billion more than they spent on research and development during the time frame in question, the report found. Assuming the same rate of spending, these 14 companies are projected to spend $1.15 trillion on buybacks and dividends from 2020 through 2029 — more than twice the amount the Congressional Budget Office projected would be saved by H.R. 3 over the same period.

Meanwhile, from 2016 to 2020, compensation for the 14 companies’ top executives totaled $3.2 billion, with annual compensation growing by 14{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca} over that five-year period.

The review indicates that even if the pharmaceutical industry collected less revenue due to pricing reforms such as H.R. 3, drug companies could maintain or even exceed their current R&D expenditures if they reduced spending on buybacks and dividends.

The companies included in the review are AbbVie, Johnson & Johnson, Novo Nordisk, Amgen, Novartis, Pfizer, Gilead, Merck, Bristol Myers Squibb, Roche, Eli Lilly, AstraZeneca, GlaxoSmithKline and Sanofi.

WHAT’S THE IMPACT

At the same time that drug companies have spent billions on buybacks and dividends, industry spending on executive compensation has increased. 

Some drug companies paid multimillion-dollar compensation packages to top executives while raising prices on drugs, the review found. For example, Johnson & Johnson paid CEO Alex Gorsky nearly $75 million from 2018 to 2020, and AbbVie paid CEO Richard Gonzalez over $66 million from 2018 to 2020. Over that same period, Johnson & Johnson and AbbVie raised the price of their co-promoted cancer drug Imbruvica by 14{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca}.

The investigation also found that price increases on certain brand-name drugs led directly to higher bonuses for executives. Celgene, for instance, paid its top executives millions of dollars in salaries and bonuses while increasing the price of the cancer drug Revlimid. Between 2006 and 2018, Celgene paid its top executives more $450 million in compensation. Internal company data showed that Celgene’s executives would not have met several annual bonus targets if not for their decision to increase the U.S. price for Revlimid.

The takeaway for the committee is that drug company executives are incentivized to raise drug prices through bonus structures that increase revenue targets each year. 

Pharma executives say the price increases are necessary to fund R&D.

But the report determined that even when companies invest in R&D, many of the expenditures are focused on suppressing competition from generics. Case in point is AbbVie, which sells Humira, used to treat rheumatoid arthritis and other autoimmune diseases. In the U.S., the company has set a price of about $77,000 for a year’s supply of Humira — 470{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca} more than when the drug was launched in 2003. Humira is the highest grossing drug in the world, which the committee attributes to these price increases. In 2020, AbbVie collected $16 billion in net revenue in the U.S. for Humira.

The committee advocated for allowing Medicare to negotiate drug prices, which it said would help to foster a more sustainable drug pricing system.

THE LARGER TREND

Opponents of giving Medicare negotiating power contend that it would stifle innovation. 

President Joe Biden is a proponent of giving Medicare negotiating power, saying during a joint address to Congress in April that it would lead to lower prescription drugs for Americans.  

“We all know how outrageously expensive drugs are in America. In fact, we pay the highest drug prices of anywhere in the world right here in America,” Biden said at the time. “Nearly three times for the same drug, nearly three times what other countries pay. We can change that and we can.”

After Biden’s joint address to Congress in April, Pharmaceutical Research and Manufacturers of America president and CEO Stephen J. Ubl said PhRMA stands ready to work with policymakers to help address the tough challenges facing the country, including making medicines more affordable. 

“However, giving the government the power to arbitrarily determine the price of medicines is not the right approach,” Ubl said by statement, “which is why we’ve offered a better way to lower medicine costs for patients while at the same time protecting access to current and future treatments and cures.”

Solutions offered in phrma.org/betterway include improving affordability in Medicare Part D by capping out-of-pocket costs and lowering cost sharing; Instituting a market-based adjustment for Medicare Part B in which manufacturers would provide a price concession to Medicare based on prices that fall below the average sales price; Having better insurance coverage for medications without the high deductibles; and offering fixed-dollar copays.

AHIP has said that drugmakers alone control the price of drugs.

In November 2020, the West Health Policy Center released a study finding that more than 1.1 million Medicare patients could die over the next decade because they can’t afford to pay for their prescription medications. If current drug pricing trends continue, it’s estimated that cost-related nonadherence to drug therapy will result in the premature deaths of 112,000 beneficiaries a year, making it a leading cause of death in the U.S. – ahead of diabetes, influenza, pneumonia and kidney disease. 

Millions more will suffer worsening health conditions and run up medical expenses that will cost Medicare an additional $177.4 billion by 2030, or $18 billion a year for the next 10 years.

Meanwhile, a new PPP poll on behalf of Protect Our Care released this week shows that voters in 10 key congressional districts — whose representatives indicated in a recent letter that they may oppose H.R. 3 — overwhelmingly support giving Medicare the power to lower prescription drug prices.

Twitter: @JELagasse
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