US Health Secretary Alex Azar Takes Aim at Rebates in US Senate Hearing

June 15, 2018: By Jon Swedien
Health Secretary Alex Azar

Health Secretary Alex Azar

US consumers would benefit if the government ended the rebates that drug manufacturers negotiate with pharmacy benefit managers (PBMs), Health and Human Services Secretary Alex Azar told a US Senate committee June 12.

Azar told the Senate Committee on Health, Education, Labor, and Pensions that a system where PBMs and drug companies just negotiate fixed-price contracts might better incentivize drug manufactures and PBMs to lower prices, rather than raise them.

“The key is can we detach the incentives of everyone in the system from these artificial list prices?” Azar said. “Rebates are a cut, a percent of that artificial list price, and they basically foment this game we have of list price goes up, rebate goes up, list price goes up, rebate goes up, where everybody is winning but the patient, who ends up paying out of pocket.”

Rebates have been growing, according to a Wells Fargo analysis that found the average sale, rebate, and allowance offered to insurers by drug manufactures increased from 28 percent to 41 percent between 2012 and 2018.

Sen. Lamar Alexander (R-Tenn.), chairman of the HELP committee, asked if the executive branch has the authority to eliminate rebates.

Azar said he believes his department can. The rebates are allowed as an exception under the federal anti-kickback statute, and that regulation can be modified, Azar said. He added that Congress could also act to stop rebates.

Sen. Susan Collins (R-Maine) said some companies want to lower drug prices but fear reprisals from PBMs because they control whether drugs are placed on formularies for insurance plans.

“The fact is PBMs make more money if they are paid a percentage of a higher list price,” Collins said. Azar agreed and said it is a “rather startling and perverse system that has developed over time.”

Azar also talked about the Trump’s administration’s plans to move some drugs covered under Medicare Part B—which covers only drugs administered by a doctor—to Medicare Part D—which covers most prescription drugs—to allow for private-payer negotiation of those drugs. Lucentis and Eylea are examples of drugs covered under Medicare Part B.

Sen. Michael Bennet (D-Colo.) asked Azar about studies that have shown some patients paid more out of pocket for cancer drugs under Part D than Part B.

Azar said the administration is aware of the issue and wants to “tread very carefully” while pursuing greater private-payer negotiation.

He said there are many things the administration can do on its own, but Congress would need to tackle some issues; even where the administration can act independently, congressional support would be helpful.

For example, Azar said he believes the administration has the authority to require drug manufacturers to disclose the list price of their products in TV ads.

Nevertheless, Azar said Congress could pass legislation to “shore up” that authority. Some have speculated drug manufacturers could challenge the requirement on First Amendment grounds.

He also said Congress could pass a law to outlaw the “gag rules” on pharmacists that prevent them from disclosing when medicines are cheaper to buy out of pocket rather than using one’s health plan.


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