Sanders Won't Let Facts Get In Way of a Good Pharma Shaming

Vermont Senator Bernie Sanders called the CEOs of several major pharmaceutical firms to testify earlier this month before the Senate Health, Education, Labor and Pensions Committee, where he serves as chairman.

The hearing's official purpose was to discuss prescription drug pricing. But it mainly offered Sanders a forum to castigate the pharmaceutical industry.

"The overwhelming beneficiary of high drug prices in America is the pharmaceutical industry," Sanders said. "The United States government does not regulate drug companies. With a few exceptions, the drug companies regulate the United States government."

That's a bit rich, as the Biden administration is preparing to impose price controls that take effect in January 2026 on 10 brand-name medicines through Medicare Part D's prescription drug benefit.

In any case, the senator's fixation on drug prices ignores what the United States actually spends on drugs — not to mention the enormous value they deliver.

Let's start with some facts. Prescription drugs aren't a major driver of healthcare spending. As of 2022, retail drug spending accounted for just 9% of U.S. health expenditures.

Hospital care, on the other hand, was responsible for 30% of America's healthcare bill; physician and clinical services accounted for 20%.

Prescription drugs represent a smaller share of health expenditures in the United States than they do in other developed countries. Drugs account for 12.5% of health spending in France, nearly 14% in Germany, and 14.5% in Canada, according to data from the Organisation for Economic Co-operation and Development.

Further, U.S. drug prices haven't increased much in recent years. During the 12 months ending January 2024, drug prices inched up 0.4%, according to the latest data from the Bureau of Labor Statistics. This was during a year when overall prices rose by more than 3%, and the price of hospital and related services shot up 6.5%.

Spending on prescription drugs can lead to lower costs elsewhere in the healthcare system. Daily or weekly pills or infusions can allow patients to prevent and manage serious health conditions without resorting to inpatient care, surgery or other costlier interventions.

In this way, they serve as an invaluable tool for containing healthcare costs — not a conspicuous driver of healthcare inflation.

Sanders ignored this wider context during his hearing — and instead singled out Bristol Myers Squibb's blood thinner Eliquis, Johnson & Johnson's immunosuppressant Stelara, and Merck's immunotherapy drug Keytruda for scolding. Eliquis and Stelara are two of the 10 that will be subject to price controls through Medicare starting in 2026.

These drugs are among the few that make it out of the lab to patients. Just 12% of drug candidates that enter clinical trials ultimately garner approval from the Food and Drug Administration.

The high rate of failure, combined with the high costs associated with conducting clinical trials and navigating the drug-approval process, is why the cost of bringing one drug to market eclipses $2 billion.

Drug firms have just a few years to recoup those costs before the intellectual property protections that give them an exclusive franchise to sell their work expire. Once that time is up, generics or biosimilars can enter the market.

That additional competition drives prices down precipitously, to the benefit of consumers. And they're taking advantage. Over 90% of the prescriptions filled in the United States each year are low-cost generics.

There's little doubt that price controls will reduce what Medicare beneficiaries pay for drugs in the short term. But such controls will chill investment into the next generation of therapies and cures.

It would be far more economically efficient to inject transparency into the prescription-drug purchasing process.

Consider that average list price increases have been below 5% for the past four years. But average net prices — which subtract rebates and discounts extracted by payers — have declined on an annual basis over that time frame.

Middlemen, including the pharmacy benefits managers hired by insurers to negotiate with drug makers on their behalf, are claiming that spread between list and net price.

If Sen. Sanders were really interested in why the prices of brand-name drugs are rising, he would've invited those middlemen, rather than the drug makers, to tell him why.