Senator Elizabeth Warren got to one of the most important unanswered questions about Valeant Pharmaceuticals when its executives and major shareholder Bill Ackman testified before the Senate on Wednesday.
It’s a question that the company has been avoiding since the Senate starting asking questions about its controversial drug pricing practices last fall. The question is, what is with Valeant’s patient assistance programs?
Why does Valeant have those programs instead of just lowering prices?
Those high prices made Valeant a darling of Wall Street for a time, until the government noticed and started digging into the company’s business model combining low R&D spending with aggressive acquisitions follow by drug price hikes.
So again, why are their patient assistance programs instead of plain vanilla price cuts?
At the hearing Warren raised her hand and let the entire class know she had the answer.
“You double the price, even if you get a waiver to the customer, you make a lot of money,” Warren said. “What is the return on investment to Valeant on the money you’re currently putting into the patient assistance programs?”
Valeant CEO, Michael Pearson, who was on hand along with former CFO Howard Schiller, said he didn’t know what the return was. But one thing’s for sure, patient assistance programs allow Valeant to keep prices high but keep saying that they’re serving patients. At the hearing, Pearson pointed to them as a positive feature of Valeant’s business model over and over again.
Access and price
Unfortunately, though, as we learned in the hearing, tons of patients don’t qualify for these programs. In fact, Senator Joe Donnelly pointed out during the hearing that even the largest Catholic hospital system in the world couldn’t use Valeant’s “volume based” assistance program.
That is why Warren was not amused, or confused, by Pearson’s explanation. She said she read in Bloomberg that drug companies spent $7 billion on patient assistance programs, and there had to be a reason for that.
“Don’t tell me you’ve never done the analysis… By doing this you… keep the patient on the more expensive drug and then you… recoup whatever from the insurance company. What I’m saying is that this must be a profitable… for you… You’re making more money… You haven’t done that analysis?”
Pearson said he had not.
Warren asked why these programs can’t be used on government insurance and then answered her own question — “it’s because it’s illegal,” she said.
Government agencies know that the patient assistance programs are just a way for drug companies to maintain price, Warren declared, and demanded immediate action looking into these programs.
Expect drug companies to push back. Doing away with patient assistance programs may force them to give on price, and th ats business school 101 — you never give in on price.