(Bloomberg) – U.S. Health and Human Services Secretary Alex Azar told lawmakers that it may be time to eliminate the complex system of rebates that drug companies and pharmacy-benefit managers use to negotiate and set prices.
Once drugmakers set a list price for a product, pharmacy-benefit managers like CVS Health Corp. and Express Scripts Holding Co. negotiate rebates. The PBMs have been criticized for keeping some of the rebates for themselves instead of passing them directly to consumers to lower their out-of-pocket costs. Other critics say the spread between a drug’s list price and the PBM-negotiated one can hurt patients who don’t use insurance.
In his health-care blueprint released last month, President Donald Trump called for looking into reducing or ending the rebates.
“We may need to move toward a system without rebates, where PBMs and drug companies just negotiate fixed-price contracts,” Azar said Tuesday in testimony before the Senate Health, Education, Labor and Pensions Committee. “Such a system’s incentives, detached from artificial list prices, would likely serve patients far better.”
Senator Lamar Alexander, chairman of committee, has questioned the need for rebates because they make it difficult to track true drug spending.
“I understand the administration may need some additional authority to modify or end the practice of rebates,” Alexander, a Tennessee Republican, said in his opening statement.
Azar’s testimony came as the Food and Drug Administration released the final version of a plan to make it easier for drugmakers and insurance companies to negotiate pricing deals based on how well a medicine works, a change that both sides say could help lead to a more efficient health-care system.
The guidelines cover how pharmaceutical companies can have conversations with payers about so-called value-based agreements. Under such arrangements, the amount an insurer covers is based on a specific outcome -- such as keeping patients from being hospitalized -- instead of a flat fee.
Restrictions on such conversations have made drugmakers nervous about breaking FDA rules. Current regulations limit what they’re able to discuss prior to a drug’s approval, and potential use of a medicine once it’s on the market that isn’t included in the label. The rules also apply to medical-device manufacturers.
“We want to encourage competitive contracting based on measures of value that matter most to purchasers and patients, and this guidance will help accomplish that,” Azar said.
Value deals
Value-based deals have already been struck for several treatments. They include: Merck & Co.’s diabetes medications Januvia and Janumet, Eli Lilly & Co.’s diabetes treatment Trulicity and Novartis AG’s heart-failure therapy Entresto. In the case of Entresto, insurer Cigna Corp. agreed to pay for the drug based on keeping patients out of the hospital for heart failure. Amgen Inc. has said it may pursue such deals for its migraine drug Aimovig.
The FDA regulates pharmaceutical companies’ communication to ensure it’s accurate based on the safety and efficacy data the FDA reviewed and included in a drug’s label. Sometimes payers want different economic data or information on uses of the drug that hasn’t undergone FDA review. Doctors are allowed to prescribe a treatment for any condition, not just those specified in the label.
One hurdle that hasn’t yet been addressed involves how the Centers for Medicare and Medicaid Services pays for medications for the poor under the Medicaid program. Medicaid is supposed to get the lowest price available, a calculation that could be skewed if that payment deal is based on the price an insurer pays for a patient who doesn’t respond well to a drug. The pharmaceutical industry has asked for clarification over how a value-based payment would influence the amount Medicaid pays.
Azar also told lawmakers that the U.S. needs better drug-price negotiation in the Medicare program, which provides health care for the elderly and disabled.
“That is what President Trump has promised, and it’s what we’re going to deliver,” he said.
Medicare negotiation typically refers to government price setting, an idea Trump backed when he said drugmakers would have to bid for government business in January 2017. But the administration has since rejected that idea, instead focusing on giving private companies more power to strike deals.
