DOSE OF REALITY: BREAKING DOWN BIG PHARMA’S YEAR OF BAD BEHAVIOR IN 2023: PART IV: TAX AVOIDANCE SCHEMES AND KICKBACKS

Big Pharma’s Tax Avoidance Schemes and Use of Kickbacks to Boost Profits Came Under Fire in 2023

With each new year comes a time-honored tradition for Big Pharma: Hiking prices on hundreds of brand name prescription drugs in the first two weeks of January.

As Big Pharma’s next round of January price hikes approach, we can take a look back at a year of bad behavior for the pharmaceutical industry and be reminded why policymakers must hold brand name drug companies accountable to lower drug prices.

In our first installment of our year-end series, we reviewed Big Pharma’s egregious pricing practices in 2023, including continuing to hike prices faster than the rate of inflation, bringing new drugs to market with skyrocketing launch prices, and colluding with each other to raise vaccine prices.

In the second installment of our series, we looked at Big Pharma’s massive spending opposing drug pricing solutions, pushing a blame game designed to boost brand name drug companies’ bottom line and evade responsibility for high prices and staggering investments in direct-to-consumer (DTC) advertising pushing high-priced brand name products.

In the third installment, we explored new data from 2023 on the staggering cost of Big Pharma’s anti-competitive abuse of the U.S. patent system.

Today, we’ll review how Big Pharma was exposed for avoiding paying U.S. taxes and for utilizing kickback schemes to boost profits in 2023:

TAX AVOIDANCE SCHEMES

Senate Finance Committee Report Highlights How Big Pharma Avoids Paying U.S. Taxes

Ahead of a May hearing in the U.S. Senate Finance Committee examining the pharmaceutical industry’s tax practices, Chairman Ron Wyden (D-OR) released a report from the Joint Committee on Taxation detailing how Big Pharma games the system to avoid paying U.S. taxes while price-gouging American patients.

As a summary of the report notes, Big Pharma reduced their tax burden by 40 percent since the Tax Cuts and Jobs Act of 2017 went into effect by utilizing a loophole to move taxable profits to overseas entities. From 2014 to 2016, Big Pharma paid on average 19.6 percent in taxes. In 2019 and 2020, that rate was reduced to an average of 11.6 percent.

Senator Wyden noted that this is particularly egregious because Big Pharma boosts profits by charging out-of-control prices in the U.S., while reporting those profits overseas to significantly reduce their taxable income. “These are American companies selling to American patients, but their profits show up somewhere else,” Wyden exclaimed in the May hearing. “Amgen reported 60 percent of its profits offshore in 2019. AbbVie reported 100 percent of its profits offshore.”

According to the report, on average, while 80 percent of Big Pharma’s profits come from the U.S. market, almost 75 percent of the industry’s profits are reported overseas.

Tax Avoidance Schemes Lead to Big Profits for Big Pharma

In August, Business Insider published an article further examining the pharmaceutical industry’s offshoring of profits to avoid paying taxes in the U.S. The piece examines how Big Pharma has actively pursued a variety of tactics to move their intellectual property, patents and manufacturing facilities into low-tax jurisdictions overseas to reduce their tax burden in the U.S. while price-gouging American patients.

The impacts of this have been astonishing. In 2022, seven of the largest pharmaceutical companies paid the U.S. government only $2 billion in taxes on $108 billion in profit. This means these companies effectively paid “only about three percent of their global profit to the U.S. Treasury.” The standard U.S. corporate tax rate is 21 percent.

The piece also highlights brand name drug manufacturer AbbVie’s strategy around its blockbuster drug Humira. AbbVie “located the right to profit from Humira in its Bermuda subsidiary and manufactured the drug in Puerto Rico, which is considered outside the U.S. for tax purposes.” This meant “all the profit for the drug was technically attributed to the division in no-tax Bermuda.”

PHARMA KICKBACKS COME UNDER FIRE

Big Pharma’s Kickbacks Lead Doctors to Prescribe Higher Priced and Less Effective Meds

A September analysis published by BMJ found that oncologists who received kickback payments from Big Pharma companies were more likely to prescribe non-recommended or lower-value treatments to patients.

The analysis examined prescribing practices for Medicare beneficiaries diagnosed with cancer and treated between 2014 and 2019 in two scenarios. The first scenario examined prescriptions written for drugs not recommended for specific cancers versus prescriptions for more common or recommended drugs. The second scenario examined prescribing more expensive treatments that offered no additional clinical benefit, such as Abraxane chemotherapy, over more effective or more affordable alternatives on the market.

The analysis found that nearly half, 49.5 percent, of patients who were prescribed denosumab were treated by oncologists who received payments from drug makers versus less than one-third of patients who were prescribed the drug being treated by oncologists who did not receive payments.

The findings raise concerns over how Big Pharma’s kickback payments to health care providers can impact clinical outcomes for patients, in addition to costs for patients and the health care system.

Kickbacks Increased Spending By $642.8 Million Over Six Years

Another September study published in JAMA Health Forum similarly found that ophthalmologists who did not accept payments from brand name drug manufacturers were less likely to prescribe higher-priced treatments for age-related macular degeneration.

The study examined prescriptions from more than 21,000 ophthalmologists from 2013 to 2019, using Medicare Part B data. The study examined prescriptions for Eylea, manufactured by Regeneron, as well as Lucentis, manufactured by Genentech, a subsidiary of Roche, compared to prescriptions for Avastin, a much lower-priced treatment.

The study found that ophthalmologists who received drug maker payments were much less likely to prescribe Avastin, the lower-priced option, than ophthalmologists who did not receive drug manufacturer payments. Ophthalmologists who received manufacturer payments prescribed Avastin to just 28 percent of patients, while ophthalmologists who did not receive manufacturer payments prescribed Avastin to 45.8 percent of patients.

As the study notes, this discrepancy had major implications in terms of spending for patients and the Medicare program. If ophthalmologists who received payments from drug manufacturers prescribed Avastin at the same rate as ophthalmologists who did not receive payments, Medicare Part B spending would have been $642.8 million lower between 2013 and 2019.

The study is also significant because Regeneron’s drug Eylea was the second most expensive drug in terms of total spending in the Medicare Part B program in 2020, while Genentech’s Lucentis was the sixth most expensive. Combined, these two drugs accounted for “more than 10 percent of the total Medicare Part B drug spending for 2020.”

Spending Big on Doctors to Push High-Priced Weight Loss Drugs

 A December analysis from Reuters found that Big Pharma drug maker Novo Nordisk spent over $25 million in the last decade on doctors and medical professionals to promote two of its popular diabetes and weight loss drugs, Wegovy and Saxenda. The spending came as doctors began prescribing these new, expensive drugs to tens of millions of Americans.

Big Pharma’s kickback payments are just one component of their anti-competitive playbook designed to boost spending on high-priced brand name products and undermine more affordable alternatives.

As policymakers return to Washington in 2024, they should take note of the pharmaceutical industry’s continued egregious pricing practices, reject Big Pharma’s bogus rhetoric attempting to evade responsibility and shift blame for high prices and advance bipartisan, market-based solutions to hold Big Pharma accountable.

Learn more about market-based solutions to hold Big Pharma accountable and lower prescription drug prices HERE.

Read our first blog in this series on Big Pharma’s egregious price hikes and increasing launch prices HERE.

Read our second blog in this series on Big Pharma’s massive spending on direct-to-consumer advertising and a bogus blame game in 2023 HERE.

Read our third blog in this series on the continued cost of Big Pharma’s patent abuse and anti-competitive tactics on patients and the U.S. healthcare system HERE.

And stay tuned as we continue to review Big Pharma’s bad behavior from the past year in the fifth and final blog in our end-of-year Dose of Reality series.