Azar Promotes Efforts to Tackle Rebate System

In a keynote address at the AcademyHealth National Health Policy Conference, held February 4-5 in Washington, DC, HHS Secretary Alex Azar set his focus on what he and the Trump administration have long been vocal about tackling: the rebate system.

Azar recalled the story of a woman named Sue from Kentucky, who retired from an insurance company a few years ago and suffers from a genetic skin condition. After finding a treatment that worked for her and effectively treated her condition, she learned that her out-of-pocket costs, through her Part D plan, would be $7200 a year. The price of the drug has continued to increase over the years, with the latest 6% increase in January. As a result, she had to stop taking the drug.

However, according to Azar, the net price that would be paid by her Part D plan was significantly less than the price from which her out-of-pocket costs were being calculated because of kickbacks from the drug manufacturer to the drug plan.

After hearing stories like Sue’s over the past several years, President Trump is proposing what Azar called the “single biggest change to the way Americans’ drugs are priced at the pharmacy counter ever” by introducing a significant change to the Anti-Kickback Statute safe harbors, which exempts rebates from antikickback laws.

“Behind these protections, the drug industry has built a system of kickbacks that has long drawn the ire of those concerned about prescription drug prices—both Democrats and Republicans,” said Azar.

According to Azar, more than $150 billion in rebates float around the drug pricing system each year. Under Trump’s proposal, rebates around Part D, which amounted to more than $29 billion in 2017, will be passed directly to patients at the pharmacy counter beginning January 1, 2020.

He added that the proposal will go further than just translating into lower out-of-pocket costs at the pharmacy counter. “Maybe most important, no more rebates means no more reason for drug companies to take the list price increases we hear about each January,” he said. “For that matter, there will be no more reason for the price increases they take every July, or every August, or every February, or every March.”

The reason, he said, for these price hikes is that higher list prices allow for larger kickbacks to drug plans, which ensure the drug’s placement on the formulary, in turn, increasing sales.

The current rebate system also impedes generic competition from lowering drug prices, said Azar. The latest example comes from the recent approval of a generic version of the asthma inhaler drug Advair Diskus. Without insurance, the generic version will cost approximately $35 for a month’s supply, compared to the approximate $60 it costs for the brand name drug.

However, once the generic was approved and entered the market, a large pharmacy benefit manager notified pharmacies that if a patient comes in with insurance, they cannot cover the generic and will only cover the brand-name drug. The reason for this, said Azar, is because the brand drug provides the plan with a kickback.

“By one estimate, a quarter of patients will pay more at the pharmacy counter by using their insurance to purchase the brand drug than they would pay if they just paid cash for the new generic,” said Azar.

Addressing the rebate system coincides with another move the administration has taken toward greater transparency: gag clauses. In October 2018, Trump signed legislation ending gag clauses that bar pharmacists from telling consumers when it would cost less for them to pay cash for a prescription than to pay the co-payment through their insurance.

Putting an end to gag clauses was first introduced when the Trump administration unveiled their drug pricing blueprint in May 2018, which also called for the disclosure of drug list prices in TV ads.

“Banning gag clauses means you can always ask your pharmacist if you’re getting the best deal,” said Azar. “Banning today’s kickbacks means the answer you’re going to get may be a lot more appealing.”