Skip to content

The Four Arguments You're Likely to Hear from Drug Executives

They'll blame high prices on hospitals, the middlemen, and even innovation

Arnold A decorative icon

As lawmakers face off Tuesday against executives from seven of the world’s largest drug manufacturers, they will likely encounter finger-pointing from the industry and decades-old excuses for high launch prices and unjustified increases.

Such tactics are not likely to be well-received, but will the committee let them off easily?

Here are four arguments that the pharmaceutical industry will try to make when faced with tough questions:

1. It’s the hospitals’ fault.

The drug industry will argue that they are a small part of the health care spending problem just 10 percent and that hospitals are the real problem. That number is highly misleading, and the drug executives know it. It is the retail drug spend from the National Health Expenditure (NHE), and it very clearly indicates that it excludes drugs provided in the hospital and in physicians’ offices. That number is closer to 17 percent of spending and grew 11 percent in two years. But as long as we are talking about hospitals yes they are part of the problem they account for 33% of spending and, like drug companies, have highly consolidated market positions. They, too, engage in anti-competitive contracting practices and price gouging. Prices and the resulting spending in both sectors need to be reined in.

2. It’s the PBMs’ fault.

Yes, they are highly opaque, engage in questionable revenue enhancing behaviors, and contribute to price inflation. Like the manufacturers, they should be examined closely. But in the end, according to Peter Bach of Memorial Sloan Kettering’s Center for Health Policy and Outcomes, pharmacy benefit managers extracted annual revenues of about $20 billion compared with $320 billion for the manufacturers. Solving the drug problem will have to involve reducing and constraining drug industry revenues. Ultimately, it’s the drug manufacturers that set high list prices that drive more revenue through the system and result in higher costs for employers, governments, and patients.

3. It’s the R&D.

No, it isn’t. Drugs are extremely expensive to produce. But at least part of the cost is socialized through the National Institutes of Health (NIH) the NIH contributed to all new molecular entities approved by the FDA from 2010 to 2016. Again Bach points out in one study that U.S. revenues alone exceeded global research and development spending by more than 176 percent. Drug manufacturers apply for hundreds of patents on drugs after they have gone to market. That’s not R&D, that’s protecting the monopoly.

4. Innovation will stop.

There is no reason to believe that the current mix of drug investments are optimal. Investments are disciplined by a functioning market there isn’t such a market here. The industry thinks of innovation too narrowly. The next best investment dollar to improve health could be a drug, but it could also be a different medical service like primary care or long-term care or a non-medical service like nutrition or housing.