Trump Eyeing ‘Disruptive’ Changes to Drug Pricing, Health Secretary Says

(Bloomberg) -- The Trump administration is looking to make “disruptive” changes to U.S. drug pricing to bring down costs for patients, Health and Human Services Secretary Alex Azar said.

“Every player in the system has their share of blame,” Azar said in an interview at Bloomberg headquarters in New York on Wednesday, adding that he’s working on overhauling the system. “Part of that is going to be some fairly large, disruptive changing of the rules of the road.”

The administration has taken aim at the list prices of prescription drugs, and some drugmakers have pulled back from proposed hikes in recent months. Pharma companies have long pointed to the role of middlemen such as pharmacy-benefit managers in pushing drug prices higher. PBMs collect rebates from drugmakers in exchange for preferred status on drug plans, which helps boost sales of their products.

“Pharma companies set their price,” said Azar, a former pharmaceutical industry executive. “They may be doing so within an economic system that has various incentives, and my job is to change the system.”

He was careful not to single out PBMs as the sole reason the system is working the way it is.

“I am not blaming pharmacy-benefit managers for the position we are in around drug pricing or the dynamic of rebates,” he said. “The pharmacy-benefit managers do an incredible job negotiating discounts, rebates in our system. In fact, a major part of the president’s plan is that we’re further empowering pharmacy-benefit managers,” referencing Medicare drug programs for the elderly.

In August, Health and Human Services granted private insurers, which provide coverage to about 20 million seniors through Medicare Advantage, new powers to bargain over drugs administered in doctor’s offices or hospitals. The government and consumers in those plans spent $25.7 billion in 2015 on drugs administered in a doctor’s office or hospital.

Azar also said the rebate system could potentially be replaced in part by discounts that consumers receive at the pharmacy counter.

In July, HHS submitted a proposal to the White House that would curb kickback exemptions that allow drugmakers to offer insurers and pharmacy-benefit managers rebates. Details of the proposal weren’t available, but its title provides a clue to the changes being considered: “Removal Of Safe Harbor Protection for Rebates to Plans or PBMs Involving Prescription Pharmaceuticals and Creation of New Safe Harbor Protection.”

Sweeping Shift

It could represent a sweeping shift in how drug prices are set in the U.S. and potentially eliminate some of the opacity that surrounds the system. Azar wouldn’t comment specifically on what was in the proposal.

“There will be margins, there will be businesses,” he said, implying the changes aren’t designed to dismantle companies. “They will reorient their business models and the channel will reorient around any changes we make to the rules of the road.”

Regulators have also been focused on how to increase the use of biosimilars, which are less expensive copycats of high-priced biologic drugs that often cost in the tens of thousands of dollars. Makers of these lower-cost alternatives have said that incentives in the system have made it challenging for them to compete against brand-name equivalents.

Azar said his ultimate desire would be to make it so that pharmacists could freely substitute cheaper biosimilars for their high-priced counterparts.

He’s seeking to create as “robust” a market for biosimilars as exists for generic drugs, without laying out a specific timeframe for this initiative.

The introduction of biosimilars was expected to cut billions of dollars in drug spending from the health-care system but some drugmakers say it hasn’t worked that way. Drug giant Pfizer Inc. is currently suing rival Johnson & Johnson over what it argues is anti-competitive behavior that has prevented patients from taking Pfizer’s less-expensive version of J&J’s blockbuster Remicade.

--With assistance from Blake Dodge, Jared S. Hopkins and Robert Langreth.

To contact the reporters on this story: Cynthia Koons in New York at ckoons@bloomberg.net;Anna Edney in Washington at aedney@bloomberg.net

To contact the editors responsible for this story: Drew Armstrong at darmstrong17@bloomberg.net, Timothy Annett, Mark Schoifet

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