Drug Pricing Investigations – Learning From the Past and Predicting the Future

Drug Pricing Investigations – Learning From the Past and Predicting the Future

February 18, 2021, Covington Alert

Following the 2018 elections, the incoming Democratic majority in the House of Representatives promised to pursue significant congressional investigations of pharmaceutical drug pricing. Almost immediately, the House Oversight and Reform Committee launched a large investigation and throughout 2019 and 2020, Congress conducted numerous hearings and inquiries focused on pharmaceutical drug pricing. In early 2020, we noted a number of emerging trends in these investigations, which even then had spread to nearly a dozen committees on both sides of the Capitol. Now, following the 2020 elections, we are reviewing the lessons learned through this recent wave of inquiries, and looking ahead to the likely course of drug-pricing investigations in the coming years, particularly with Democratic majorities in both the House and Senate.

Mirroring trends we have observed elsewhere on the Hill, congressional drug-pricing investigations have grown increasingly sophisticated, with key committees expanding both the breadth and depth of their investigative efforts. These developments add new complexity to the already unique challenge of responding to any congressional inquiry, and should be considered by any company preparing for or responding to the next round of drug-pricing investigations.

The Emergence of Industry-Wide Investigations

Historically, investigators on Capitol Hill have heavily relied on the front pages of major, national newspapers to identify their next targets. Whether focused on a particularly expensive drug or the availability of treatments for a high-profile disease, these headline-driven investigations have tended to focus narrowly on specific allegations of misconduct or perceived market failures. Former Turing Pharmaceuticals CEO Martin Shkreli’s memorable testimony before the House Oversight Committee is a classic example of this genre of investigation and hearing. By focusing on particular conduct already covered by national media outlets, these investigations offer readymade media events with relatively light investigative burden.

More recently, however, key committees have pursued broad, industry-wide investigations linked to specific policy priorities. This trend is perhaps most obvious in the House Oversight Committee’s wide-ranging investigation of pricing issues in the pharmaceutical industry. Launched by then-Oversight Committee Chairman Elijah Cummings, the investigation targeted 12 major drug manufactures and nearly two dozen individual products.  In conjunction with a pair of hearings in the fall, the Committee released a number of reports summarizing its findings with respect to individual companies and products in late September 2020.

Congressional investigators, along with everyone else, turned their focus to the pandemic in 2020. We expect the Select Subcommittee on the Coronavirus Crisis to continue to take the lead in pursuing wide-ranging investigations focused on all aspects of the government’s and industry’s response to the pandemic, including therapies and vaccines developed with government support, the government’s coordination with industry on the pandemic response, and the private sector’s use of pandemic relief funds and small business loans. 

For pharmaceutical companies, in addition to examining pricing issues, we expect these investigations to target distribution and access concerns, with a particular focus on racial and socioeconomic disparities. While major pharmaceutical manufacturers have rightly received widespread praise in response to the unprecedented pace of vaccine development and approval, such good will has often proven to be short-lived. Indeed, congressional investigators have frequently demonstrated a ready ability to distinguish their general support for scientific advances from more pointed critiques of particular pricing and access issues.

It may be tempting to assume that an industry-wide investigation helpfully deflects attention from any individual company, but such investigations present particular challenges and should be approached carefully. For example, committees have been known to attempt to play targets off one another to exert additional pressure on companies responding to requests for documents or hearing testimony. Knowing when to push back or being able to recognize when you are being played are important considerations for targets of congressional investigations.

Increasing Emphasis on Intellectual Property Issues

Just as congressional drug-pricing investigations have grown in scope, investigating committees have begun to push for information regarding a broader range of topics that affect companies’ pricing decisions. Most notably, throughout the last Congress, investigators sought detailed information regarding intellectual property protections for popular drugs. 

Discussion of intellectual property issues remains primarily focused on traditional concerns regarding purported efforts to extend patent protections for lucrative products and delay the entry of generic competition. Increasingly, however, congressional investigators have also sought to uncover evidence of the involvement of federally funded scientists in any stage of a drug’s development process. Even where private investments far outstrip any federally supported research, Members have pointed to evidence of even minimal federal involvement as grounds to attack intellectual property rights and pressure drug makers to lower prices. 

In October 2020, in response to a request from House Oversight Committee Chair Carolyn Maloney (D-NY) and Senate Finance Health Subcommittee Chair Debbie Stabenow (D-MI), the Government Accountability Office (“GAO”) issued a report reviewing the U.S. Department of Health and Human Services’ management of its intellectual property that has contributed to the development of new drugs. Although the GAO’s ultimate recommendations focused on greater transparency at the agency, the report signals growing interest in exploring new avenues for investigating pricing issues.

Growing Interest in Competition Issues

Even as congressional investigators continue to pursue inquiries focused on drug pricing and associated intellectual property issues, we expect the new Congress to bring wider-ranging investigations of the pharmaceutical industry.

In particular, in November 2020, a leading Democratic member of the House Judiciary Subcommittee on Antitrust, Competition Policy and Consumer Rights signaled his interest in investigating competition issues in the pharmaceutical industry. Subcommittee Vice Chairman Joe Neguse (D-CO) cast his proposed investigation as an extension of the Subcommittee’s long-running investigation of similar issues in the technology sector. That investigation, which included sweeping document requests and culminated with a high-profile CEO hearing in July 2020, coincided with parallel investigations conducted by the Department of Justice and the Federal Trade Commission. For these reasons, the potential for a comparable investigation targeting the pharmaceutical industry presents a significant new risk for drug manufacturers both large and small.

Companies anticipating such inquiries would do well to begin assessing any potential risks associated with past acquisitions or other transactions that could be cast as anticompetitive. In particular, acquisitions of smaller companies that could be seen as potential competitors have drawn particular attention from the Subcommittee. Meanwhile, agreements that could be faulted for depressing generic competition could be a particular focus of any future investigation. Finally, companies preparing for or responding to competition-related inquiries would do well to monitor any inquiries from the Hill to federal antitrust regulators, as such inquiries could be an early signal of congressional interest in particular transactions or other market conduct.

Linking Pricing to Executive Compensation

Another recurring theme in recent investigations is the purported link between drug prices and executive compensation. Indeed, each of the reports issued by the House Oversight Committee in connection with recent drug-pricing hearings highlighted supposed incentives for senior executives to adopt annual price increases as a means of driving revenue growth. 

Of course, the topic of executive compensation has long been a familiar feature of Member questioning in high-profile oversight hearings. In particular, in recent drug-pricing hearings, Members have utilized common executive compensation models as a cudgel to press witnesses to defend recent pricing decisions. In many cases, these exchanges are easy fodder for “gotcha” moments on television and social media. When handled effectively, however, witnesses responding to these and other common lines of questioning can defuse uncomfortable moments and minimize the likelihood of a meme-worthy clip. Careful preparation, guided by counsel experienced in congressional oversight hearings, is key.

Conclusion

In the most recent Congress, congressional interest in drug-pricing issues continued to spur hearings, inquiries, and attention on pricing and other business practices in the pharmaceutical industry. Yet even that unprecedented level of investigative activity in both the House and Senate has done little to exhaust the bipartisan push for greater scrutiny of the industry. With this in mind, the companies best prepared to withstand the next wave of congressional oversight will be those that have studied the past investigations, planned ahead, and mapped out their best defenses before a letter from Congress even arrives.

If you have any questions concerning the material discussed in this client alert, please contact the following members of our Congressional Investigations practice.