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Azar Defends Plan to Lower Part B Drug Costs

WASHINGTON — Health and Human Services (HHS) Secretary Alex Azar delivered a spirited defense Tuesday on the Trump administration’s plan to change the way drugs are paid for under Medicare Part B.

“Pharma has gotten some stakeholders to claim that this plan will cause drug companies to not offer their drugs for sale in Medicare,” Azar said at a briefing here sponsored by the Council for Affordable Health Coverage. “Are we seriously to believe that a drug company will walk away from earning a 26% premium from the world’s largest payer to earn less from a European country?”

Under the administration’s proposal, known as the International Pricing Index (IPI) model, “Medicare would receive a share of the discounts that drug companies currently give other countries,” Azar explained. “The IPI model aims to cut the cost of the most expensive drugs in Medicare Part B by 30%.”

“That means going from paying 80% more than what other wealthy countries pay for these drugs to 26% more,” he continued. “Our target price, in other words, will still pay manufacturers more on average than they make in any other country on earth. As a wealthy country, we’ll still be paying more than other wealthy countries — just not offensively more.”

Azar explained that the price reduction will be phased in over a 5-year period. “In the first year, 20% of the price will be determined by our international target, and 80% by the current Medicare pricing system. The following year, it will be 40% target price, 60% the current system, and so forth. This gives drug companies time to adjust. In other countries, manufacturers will have time to negotiate a price more in line with what Americans pay.”

Health and Human Services Secretary Alex Azar discusses drug prices at an event sponsored by the Council for Affordable Health Coverage. (Photo by Joyce Frieden)

In situations where drugmakers can’t negotiate a higher price abroad in order to raise the price they get from Medicare, “they may have to continue giving cheaper prices overseas and take a cut in Medicare reimbursement,” he said. “The ultimate results here will be driven by forces in the drug market and decisions drug companies make in response to them. Their fate is in their hands.”

Azar took issue with critics who claimed that pharmaceutical manufacturers don’t have a choice in what they charge other countries. “This is belied by the fact that companies do sometimes decline to sell to countries because the price offered is too low,” he said. “They don’t launch their drug there, or they delay its launch.”

He also pointed to a drop in the number of price increases that drugmakers implemented in the wake of the administration’s announcement of its blueprint for lowering drug prices. “From the release of the President’s drug pricing blueprint last May through the end of 2018, drug companies took 57% fewer price increases on brand drugs compared with the same period in 2017,” said Azar. “Some companies, such as Amgen, Merck, and Gilead, have cut the list price on certain drugs, and early data suggests that the 2019 price increases have been smaller and fewer in number than we saw in 2018.”

But they still have a long way to go, he added. “In fact, some manufacturers are still in denial about whether bringing down list prices is even an important goal. They claim that these skyrocketing prices don’t matter. But these prices do matter to patients, and our programs, in a number of important ways,” since patients’ deductibles reset every year and they must pay the list price until they finish up their deductible. “This can mean thousands of dollars in drug costs for the 47% of Americans in high deductible health plans.”

Azar said HHS was willing to work with anyone — including both Democrats and Republicans — who had ideas on how to lower prices. “We are open to any ideas that preserve drug safety and keep the patient at the center. Nothing that meets that standard is off the table until prices come down. That is an invitation to all of you: We know you have ideas, and many of you have brought them to us. A number of you have already been valuable allies in this fight. So continue to engage with us.”


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