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Remarks to 340B Coalition Summer Meeting

Alex M. Azar II
340B Coalition
July 9, 2018
Washington, D.C.

Today, we have a President who doesn’t tolerate talk. He demands action. When a government program, or a system like drug pricing, isn’t working for the American people, President Trump doesn’t accept excuses—he wants fixes. That is why I am so optimistic about the prospects of positive change in American healthcare over the next several years. We will make progress on long-standing priorities, like moving to value-based care and rationalizing our system of drug pricing, because the President will accept no less.

As Prepared for Delivery

Thank you for that introduction, Maureen [Testoni], and thank you to all of the members of the 340B Coalition for welcoming me here today.

All of you are here because you share an interest in a program that helps provide affordable medicines for some of the most vulnerable patients in our country’s healthcare system. That cause is a laudable one, and I want to applaud the work that your institutions do toward that end.

In particular, I want to recognize the work of safety net hospitals, critical access hospitals, community health centers, and other specialty providers that serve underprivileged populations. Through a combination of public support and private generosity, America has a strong network of high-quality providers that serve vulnerable populations, and many of you play a vital role in that network. So for that, I want to say thank you.

It’s worth recognizing, however, that how we care for vulnerable Americans—the elderly, the low-income, those with chronic conditions or serious disabilities—is constantly changing.

Federally qualified health centers, for instance, have greatly expanded the work they do providing quality care in local, accessible settings. The number of patients served by health centers expanded from 10.3 million Americans in 2001, when I first started at HHS, to 25.9 million in 2016—a 151 percent increase. Institutions like critical access hospitals and health centers have embraced change during that time, too, leading the way in the use of technologies like telehealth.

So everyone here who serves the needy understands the importance of adapting our work to changing circumstances. Our country’s population is aging rapidly, and many of our rural communities are shrinking. We also face a historically unprecedented challenge of substance abuse, in the form of opioid addiction.

But we also have opportunities: New drugs make it possible to cure conditions, like hepatitis C, that patients once had to manage at great cost and inconvenience. There have even been improvements in the outcomes for areas of healthcare often considered moribund, like kidney dialysis, where mortality rates have dropped steadily over the past decade and a half.

Yet our system of healthcare regulation and financing has not always kept up with these changes. Indeed, when our systems are not adapting to or encouraging innovation, they are just as likely standing in the way.

Nowhere is that more true than in our drug pricing system.

Let’s look back at how we got to the system of drug purchasing that we have today.

Thirty years ago, the majority of prescriptions filled at retail pharmacies were cash transactions. It was a simple arrangement, and drugs weren’t very expensive or sophisticated.

Over time, however, health plans began to offer drug coverage to compete for new members, knowing the benefit could be offered at relatively low cost.

But in the 1990s, the complexity, price and benefits associated with prescription drugs dramatically increased. National drug spending grew between 11 and 17 percent per year in the 1990s, as both prices and volume soared. This, of course, was around the time that the 340B Drug Pricing Program was created.

In response to rising prices, health plans began to use closed formularies to negotiate higher rebates and discounts from manufacturers, holding down increases in net prices. But this didn’t stop drug companies from driving their list prices even higher—especially as they began to face a generational loss of exclusivity in the late 2000s.

Growing list prices interacted in a perverse way with the rise of high-deductible health plans and separate drug deductibles. Today, 44 percent of Americans under the age of 65 have a high deductible plan. Before meeting their deductible, they may be forced to pay a significant share of a drug’s list price—a huge burden for those with high-cost medications.

So something must be done about these skyrocketing list prices—and yet the system that has been built makes that nearly impossible. Everyone in the system, from drug manufacturers to pharmacy benefit managers and wholesalers, makes their money as a share of list prices, so they have little incentive to force them down.

That is why, earlier this year, President Trump and I rolled out a plan for fundamentally disrupting this system—for fixing the incentives we have for list prices, improving competition by our government programs, stoking competition in drug markets, and bringing down out-of-pocket costs.

Some in the 340B community believe our delay of the penny pricing regulations is in deference to the pharmaceutical industry. That couldn’t be further from the truth. We will address this, and propose other changes to the 340B program, as part of our comprehensive approach to lowering drug prices and reducing out-of-pocket costs. The only people we defer to are the American people, and they are tired of paying so much for their prescriptions.

You may have heard the President and me referring to the fact that several drug companies were contemplating substantial and material decreases in their drug list prices. This is true. Unfortunately, many pharma companies, PBMs, and distributors are perfectly fine with list price cuts, but only if they can have their cake and eat it, too. It’s time to do what’s right for patients and get drug prices down, even though every incentive in the system is toward higher list prices.

The reason so many drugs are available to Medicaid for free and 340B hospitals for a penny is because drug companies have continued raising prices at a pace faster than the rate of inflation. The time for using rebates to buy formulary access, we have suggested, may soon be coming to an end. 

In much the same way that Wellpoint taking huge price increases during a pivotal moment of the ACA debate emboldened policymakers to control their rates, the drug companies that recently increased prices will be remembered for creating a tipping point in U.S. drug pricing policy. As you may have recently seen on Twitter, the President’s noticed, I’ve noticed, and, more importantly, the American people have noticed. Change is coming to prescription drug pricing, whether it’s painful or not for pharmaceutical companies.

One of the fundamental ways we aim to do this is by restoring transparency and pricing signals across a system, where, today, they are so often absent. Most significantly, we are examining whether we need to disrupt the entire system of rebates, which drives list prices ever higher while patients keep paying more. Eliminating rebates within the Medicare program, pushing the system toward fixed-price discounts, is well within our administrative powers.

The same goes for the program that you all have gathered here to discuss: the 340B Drug Pricing Program. Its creation in 1992 was a bipartisan accomplishment, an innovative way to have stakeholders augment federal support for the provision of healthcare to low-income Americans.

Since then, billions of dollars of drug savings have been applied to charity care by entities covered by the program. We know that because of the sheer scale of the program. But at the same time, we simply do not know the scale of benefits that have been delivered.

Yet in 2010, the Affordable Care Act significantly expanded 340B, without strengthening it or providing any way to align benefits with costs.

In particular, one perverse effect was the way that the ACA’s significant expansion of Medicaid increased the number of hospitals eligible for 340B. With broader Medicaid coverage, there should have been fewer patients in need of charity care, and yet 340B, a program intended to finance that care, was dramatically expanded.

By one estimate, discounted purchases under 340B totaled $16 billion in 2016—a four-fold increase just since 2009. In fact, that estimate found discounted purchases grew 30 percent just from 2015 to 2016. Government programs can grow pretty fast, but they usually don’t grow that fast.

This growth has occurred without any increase in statutory oversight. As you will hear from Capt. Krista Pedley of HRSA tomorrow, HHS works hard within the powers we have to oversee the program. But a comprehensive system for reporting on the distribution and use of the program’s benefits does not exist.

The current nature of 340B is such that it is quite possible for the program’s benefits to be diverted to unintended purposes, unrelated to supporting care for low-income patients.

For instance, the acquisition of outpatient clinics by 340B entities has meant that a Medicare patient could pay cost-sharing on the full price of a Part B drug administered in their doctor’s office, while the doctor’s office gets the drug at a large discount that will never be known to the patient, was never intended to support care for that kind of patient, and may not be used to support care for low-income patients at all. Indeed, the discount may be so steep that the patient’s cost-sharing is greater than the price their doctor paid for the drug.

So two kinds of reforms are necessary: greater transparency surrounding how these discounts are being used, and reforms to reduce the gap between discounted prices and the reimbursement provided, particularly by government programs.

President Trump’s 2019 Budget proposes broad regulatory authority to help HHS ensure the 340B benefits reach the intended recipients, and proposes new funding to support more oversight activities. Covered entities that are responsibly investing their 340B savings have nothing to fear from such measures. Indeed, the results they have to show will help bolster the program’s reputation—and the sterling reputation already enjoyed by so many generous providers of charity care.

We also believe, however, that the gap between prices paid by 340B entities and the compensation they receive has, in many cases, grown far too wide. That was the reason why the administration restructured reimbursement under Part B for 340B drugs—the first-ever major reform to reimbursement under 340B. The new payment level is still above the average price actually paid by 340B entities, but it is closer to reality. Importantly, it will help many seniors pay less for their drugs, avoiding situations where they may have owed more in cost-sharing than the provider paid for a drug.

We believe changes along these lines are essential to the future of the 340B program. Leaving a program as it is, within the rapidly changing context of healthcare, quickly renders it outdated. Worse, it often opens up new opportunities for a program’s benefits to be captured by powerful interests. If we care about any particular program accomplishing its mission, we must be constantly devoted to reforming it.

This applies not just to 340B, but to our much larger federal healthcare programs as well. President Trump has vowed to protect and strengthen the Medicare and Medicaid programs for today’s seniors and tomorrow’s, and he takes that vow very seriously. But responsibly running these programs does not mean leaving them frozen in place.

That is why we have embarked on broader efforts to transform Medicare and Medicaid into programs that pay for value and outcomes, rather than procedures and sickness. Earlier this year, we laid out a four-point agenda for this transformation: maximizing the promise of health IT, boosting price and quality transparency, pioneering new models in Medicare and Medicaid, and reducing government burdens that impede care coordination.

Action on this agenda is already under way. For instance, we have launched a “regulatory sprint,” led by our deputy secretary, to identify ways major federal regulations may be impeding care coordination and paying for value. We have released a request for information on the Stark Law in particular, and RFIs on the Anti-Kickback Statute, 42 CFR Part 2, and HIPAA are forthcoming.

These regulations, like the programs I’ve mentioned today, have not been adapted to changing circumstances. The Stark Law, for instance, made sense in an era of fee-for-service medicine. But today, it gets in the way of physicians’ coordinating care for their patients, which is essential if we want them to take responsibility for outcomes. The unintended consequence of the Stark Law, today, is that large health systems can coordinate care, while independent providers cannot.

This same lesson, about the need for ongoing reform, also applies to our two other departmental priorities: reforming our individual market for insurance and combating the opioid crisis. On insurance, for instance, we are eager to give states and individuals the flexibility they need to innovate and meet their own needs.

And in the context of the opioid crisis, we have been reminded that our behavioral healthcare system is woefully inadequate. We have talked a great deal about the need to integrate physical and behavioral healthcare over the years, while only taking incremental steps to make it a reality. Doing so will involve updating some interpretations of the well-intentioned regulations I mentioned earlier, which can get in the way of providers, communities and families supporting those in need of substance abuse treatment.

On each of the issues I’ve discussed today, in fact, there has long been a recognition of the need for action. Certainly, as one example, there has long been plenty of talk in Washington about the challenge of high drug prices—it is part of the reason 340B was created. Today, that talk hasn’t abated. Indeed, there is now plenty of talk about 340B itself, too.

But today, we have a President who doesn’t tolerate talk. He demands action. When a government program, or a system like drug pricing, isn’t working for the American people, President Trump doesn’t accept excuses—he wants fixes.

That is why I am so optimistic about the prospects of positive change in American healthcare over the next several years. We will make progress on long-standing priorities, like moving to value-based care and rationalizing our system of drug pricing, because the President will accept no less.

On top of that, he is unafraid to challenge a system simply because it is supported by powerful, entrenched interests. These special interests should be prepared for change in our system—because change is coming.

Those actors in our healthcare system who want to engage in positive reforms will have much to gain. Together, we can shake the dust off of the important programs on which so many Americans rely, revitalize them to deliver new benefits for the patients you care for, and reform our entire system to better serve the American people. Thank you for the work you do already toward this end, and thank you for listening today.

Content created by Speechwriting and Editorial Division 
Content last reviewed on July 9, 2018