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Azar adds bite to president's drug pricing blueprint


By Mari Serebrov
Regulatory Editor

Countering the naysayers who said President Donald Trump was going easy on the biopharma industry, Health and Human Services (HHS) Secretary Alex Azar started the week off by putting drug companies on notice that the administration will no longer stomach business as usual when it comes to drug prices.

If the industry isn't interested in lowering prices, the Trump administration will keep turning up the pressure "until the system finally puts American patients first," Azar promised in a briefing Monday that added some bite to the blueprint Trump delivered Friday. He added that drug companies should "pay attention," because "there's a lot on the way." (See BioWorld, May 14, 2018.)

"For too long, there's been a lot of talk on drug prices, and no action," Azar said. "Drug companies have insisted we can have new cures or affordable prices, but not both. I've been a drug company executive – I know the tired talking points: the idea that if one penny disappears from pharma profit margins, American innovation will grind to a halt. I'm not interested in hearing those talking points anymore and neither is the president."

In the briefing, Azar fleshed out first steps HHS agencies will take on four strategies the president outlined – enhanced negotiation, improved competition, lowering out-of-pocket costs and incentives for lower list prices.

Better negotiations

The administration's top priority is more efficient negotiating of drug prices in Medicare Part D, especially for drugs in the six protected classes that have been pretty much immune to negotiations in the past. In the private sector, the typical discounts for the protected drugs are in the 20 percent to 30 percent range, but their average discount in Medicare Part D is 6 percent, with some of them providing no discount. "A 6 percent discount – I'm sorry, that is not negotiating," Azar said

The Part D program currently spends about $30 billion a year on the protected drugs, which include antiretrovirals, immunosuppressants, antidepressants, antipsychotics, anticonvulsant agents and antineoplastics. While the Medicare spending for the drugs is almost 10 percent of what the entire country spends on all drugs each year, "Part D plans are hamstrung by current rules from really negotiating over drugs in these protected classes," Azar said.

Another proposal to bring negotiation to bear on pricing is a competitive acquisition program that would merge Part B drugs, those administered in doctors' offices, with Part D, where they would be subject to negotiation, and coverage decisions, for the first time. As things are, Medicare pays the standard price, plus a 6 percent markup, for Part B drugs as soon as they're approved, whereas Part D sponsors can require a cheaper alternative – for nonprotected drugs, that is.

"It's often much more appealing for the drug to go into Part B than D," Azar said. "Perversely, some of these drug development decisions are being driven by government reimbursement systems, rather than what's best for the patient."

While he touted the need for more effective, targeted negotiation by Medicare plans, Azar ruled out direct government negotiation on those prices. He noted that even the Obama administration concluded direct government negotiation, which is being pushed by several members of Congress, is not the answer. It would be a false promise that would rest on a government fiat or rationing, Azar said.

However, if drug companies want to take direct government negotiation off the table entirely, they must come to the table to negotiate honestly – and stop the price hikes, Azar warned.


Increasing competition is an area the administration can tackle immediately. To stop some of the shenanigans innovators use to delay competition, the FDA will begin publicly identifying those who use risk evaluation and mitigation strategies or commercial distribution restrictions to deny generic and biosimilar sponsors the samples they need to develop follow-ons. (See BioWorld, Nov. 9, 2017.)

"It's time to shed light on these practices and call out the manufacturers who may be abusing the rules that built our free market for drugs," Azar said.

One competitive move the administration will not endorse is the importation of cheaper drugs from Canada or Europe, which has been a go-to fix-it pushed by many U.S. lawmakers over the years. Importation is not a solution; it's a gimmick, Azar said.

"Canada simply doesn't have enough drugs to sell them to us for less money, and drug companies won't sell Canada or Europe more just to have them imported here," he explained.

Then there's the problem of ensuring that drugs purportedly coming from Canada or Europe actually would be coming from there. "The last thing we need is open borders for unsafe drugs in search of savings that cannot be safely achieved," Azar said.

Out-of-pocket costs

"You can't improve competition and choice in our drug markets with gimmicks like these. You have to boost competition and price transparency," Azar said as a segue to the next strategy – reducing patients' out-of-pocket costs.

The first step in that direction is ending the gag clauses some pharmacy benefit managers (PBMs) impose on pharmacies to keep them from telling patients that paying cash for a drug would be cheaper than paying their insurance co-pay.

The Centers for Medicare & Medicaid Services (CMS) is sending a letter this week to all Medicare Part D plan sponsors saying that gag clauses are unacceptable. But PBMs don't need to wait for that letter, and they can end the practice in the private sector, as well. If they "really believe in doing right by the patients they work for, there's no reason they can't end this practice and release pharmacists from these gag clauses right now," Azar said.

In a broader effort to tackle out-of-pocket costs, CMS plans to bring more transparency to the drug market so patients know how much a drug costs and what it will cost them before they get to the pharmacy.

List prices

Part of that transparency has to do with list prices. CMS will unveil updates this week to its drug-pricing dashboard, providing more detail about which companies are raising those prices. And the FDA is looking at requiring consumer drug ads to include the list price.

"When patients hear about a wonderful new drug, they should know whether it costs $100 or $50,000," Azar said. "A patient might even pay for a doctor's appointment to discuss a drug, not knowing that the price puts it totally out of reach, and that's unfair."

Again, Azar reminded industry that it doesn't have to wait on the government before it does what's right. "Today, I am calling on America's pharmaceutical manufacturers to level with the American public – be honest about what you're trying to charge us, put your list price in your ads."

Other steps the administration is considering to address high list prices include replacing the PBM rebates with fixed-price discounts or incorporating that rebate into the average manufacturing price (AMP) used for Medicaid discounts. The AMP change alone "could drop what manufacturers get paid on many Medicaid drugs by 30 to 40 percent or more," Azar said.

Lowering drug prices isn't just up to the administration. Azar said there are things Congress needs to do – such as removing the cap it imposed under the Affordable Care Act on the penalty that drug companies pay when they raise prices faster than inflation. As a result of the cap, "drug companies can keep raising their prices rapidly, soaking up new profits from private insurance without paying any penalty in the Medicaid program," Azar said, noting that more than 2,500 drugs have hit the cap.