US Drug Pricing Reform: No More Medicare 'Gravy Train,' Azar Tells Pharma

HHS secretary urges serious proposals from biopharma on enhancing price negotiation in Medicare Parts D and B, promising action from the Administration whether the industry cooperates or not.

The US biopharma industry needs to come forward with proposals to effectively address the lack of price negotiation for prescription drugs covered by Medicare and won’t get away with talking points about preserving innovation and access any more, HHS Secretary Alex Azar warned at policy gathering sponsored by the American Enterprise Institute and the USC-Brookings Schaeffer Initiative for Health Policy May 16.

Azar focused on two areas of Medicare drug coverage where the Trump Administration believes there is no price negotiation, or very little, and wants to target for improvement – the protected classes in Part D and Part B physician-administered treatments. (Also see "Trump Drug Pricing Plan Includes Part D Surprises, Challenges PBM Business Model" - Pink Sheet, 11 May, 2018.)

The Administration has invited comments on various approaches that could help achieve its goals and Azar put manufacturers on notice that their input better be engaged and constructive. The deadline for comments on the Administration's request for information is July 16.

“Drug companies have insisted we can have new cures or affordable prices but we can’t have both,” Azar noted. “I’ve been a drug company executive so I know the talking points pretty well, the idea that if one penny disappears from pharma profit margins, American innovation will grind to a halt.”

But “the President and I are tired of these talking points and I suspect many of you are as well. Talk isn’t going to cut it any more. We understand the problem is complex ... but the complexity of the problem is no excuse for inaction or incrementalism. There are plenty of actions that we can and will take to shake up the system.”

The blueprint suggests HHS may “support” better drug price negotiation in Medicare by “providing plans full flexibility to manage high cost drugs that do not provide Part D plans with rebates or negotiated fixed prices, including in the protected classes.”

Part D plans are required to cover “all or substantially all” drugs in six protected classes, including antineoplastics, antidepressants, antipsychotics, immunosuppressants, anticonvulsants, and antiretrovirals.

“We already have a clear sense of where the immediate opportunities for savings exist” in merging Part B drugs with Part D,  Azar said.

The protected classes policy has hampered plans’ ability to negotiate price concessions with manufacturers because they are not able to threaten manufacturers with non-coverage. As a result, pricing for those drugs has not been subjected to the same pressure as non-protected classes.

Price discounts for Part D protected drugs average 6%, versus the typical market discounts of 20%-30% for other drugs, Azar said.

He also called out a 20% price increase over the past year for one of the most commonly used drugs in the protected classes – reportedly a reference to Celgene Corp.’s cancer drug, Revlimid (lenalidomide) – which led to a $150 per month increase in patient cost sharing.

A Celgene spokesman did not respond directly to Azar’s comments but said in an email that “we price our medicines based on the value they provide to patients and to the healthcare system and the need to fund our extensive research to develop new treatments, which at 40% of sales is among the highest of any large company in any industry anywhere in the world.”

The blueprint doesn’t offer detail about how the Administration would help plans get lower pricing on protected drugs. But it seeks comment on that and on whether manufacturers of protected classes drugs that have increased prices or failed to provide rebates should have their protected status revoked.

Merging Part B Drugs With Part D

HHS is exploring merging Part B drug coverage with Part D to take advantage of the negotiation that is taking place in the outpatient program (outside of the protected classes), Azar said. (Also see "Part B Drugs Could Be Switched To Part D Under Trump Pricing Plan" - Pink Sheet, 14 May, 2018.)

The department has not offered details on whether all or only certain categories of drug might be merged. But “we already have a clear sense of where the immediate opportunities for savings exist and an announcement of how we intend to go about this process is on the way very soon,” he added.

Industry has pushed back against the idea of moving Part B drugs to Part D, protesting it could limit patient affordability and access, Azar noted. “I beg to differ,” he argued. “The single greatest threat to patient affordability and access to prescription drugs in America is high list prices set by drug companies and incentivized by today’s system.”

Azar stressed that the Administration is serious about changing the status quo and warned companies with large Medicare businesses to start thinking about solutions.

 “Let me really clear about this: we are going to bring negotiation to Part B drugs and we are going to give Part D drugs more bargaining power. It’s going to happen. So it would be most productive if the pharmaceutical industry came to us with plans for these changes," he said.

“I hope such plans are already in the works because I know there are pharmaceutical companies that are heavily Part B-dependent and ones that are heavily Part D-dependent. As the President said last week: if you're one of those companies, the gravy train is about to be derailed."