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The Future of the Pharmaceutical Marketplace

Alex M. Azar II
Financial Times Pharma Pricing and Value Summit
September 13, 2018
New York City, New York

Our immediate goal is lower net prices and lower list prices, and our more immediate actions are aimed at using the tools we know are successful—competition, negotiation and pricing incentives—to effect that outcome. Lower prices for drugs will mean, in some cases, slimmer profit margins. For other parts of the drug market, like pharmacy benefit managers, our plans may involve transforming their business model.

As Prepared for Delivery

Thank you, David [Crow], for that introduction. Good morning everyone, and thank you to the Financial Times for having me here today to share with all of you an update on the Trump Administration’s view of the drug pricing challenge our country faces.

As many of you know the President released his drug pricing blueprint in May, laying out the strategy to put American patients first. We are executing on that strategy, and we’re already seeing real results. The commitment of this President is unwavering, and arguably, he’s taken more actions than all previous presidents combined to lower prescription drug prices for American patients.

Now, I want to give you a sense of how we see today’s situation, and how we believe it needs to change. All of us in this room know that the status quo cannot continue.

And many of you in this room have been following the industry for longer than I have and I suspect none of you has seen the level of attention and frustration directed at drug companies that we have seen over the past decade or so.

There is growing frustration at the industry and everyone in the channel because when list prices go up, everyone in the system benefits except for patients. 

We have charted out a path that aims to change the rules of the road to bring down list prices, increase competition, improve negotiation for discounts, and reduce out-of-pocket expenses for our seniors. And President Trump is already delivering on that strategy in the just over 100 days since laying out the strategy. 

That is the vision the President laid out in the drug pricing blueprint we introduced earlier this year. If you want to know where we are going, read the blueprint.

It is an original, American solution to the challenges patients face from high drug prices. It is a real, effective solution to these challenges.

And it is the alternative on offer. It’s this way, or a long way downhill in terms of patient choice and private-sector innovation.

So today, I want to highlight two particular aspects of what a better market for drugs would look like: more robust competition, and more effective, market-driven negotiation.

The most obvious element of a more competitive pharmaceutical marketplace is simply more options for patients, especially generic options.

We know that generic competitors are effective at driving down price. According to an FDA analysis last year, the introduction of just three generic competitors drives down prices by about half. The thriving American market for generic drugs actually allows us to pay less for some drugs than price-controlled systems in Europe do—all through the power of competition.

We need to take this progress to a new level. Under President Trump, before the launch of the drug pricing blueprint, the Food and Drug Administration had already made it a priority to speed approval of generic drugs, resulting in a record number of generic approvals in 2017.

Since the blueprint, this has accelerated: In July, FDA approved a total of 126 new generic drugs, more generic approvals than in any single month in the agency’s history.

FDA’s success reflects the priority that Commissioner Scott Gottlieb has placed on supporting efficient and streamlined reviews of generic drug applications as part of a Drug Competition Action Plan. One element of this has been cracking down on ways drug manufacturers have abused FDA programs intended to protect the public health to pad their profits instead.

We have also worked to offer as much support as possible to manufacturers endeavoring to develop new generic drugs. This morning, FDA released 54 new or revised product-specific guidances to support manufacturers about how to demonstrate bioequivalence in generic drug applications. This included 15 guidances that pertain to drugs where there is currently no generic competition. These guidances are also especially focused on complex products, where it can be more challenging for generic competition to emerge.

In the 100 days since the blueprint was unveiled, FDA has also approved the first generic drug under a new pathway designed to support generic competition, and the second was approved on Monday. We also approved the first generic version of the EpiPen and three new biosimilars, bringing the total of biosimilars to 12.

Since the blueprint launch, FDA also launched a Biosimilars Action Plan. Nowhere is competition more urgently needed than in high-cost drug areas like biologics. These products are playing an ever-larger role in keeping patients healthy, but they come at an extremely high cost.

We know there are real challenges in the manufacturing and marketing of biosimilars, but we are determined to help build a market for these drugs that is as competitive as exists with generics. The end goal needs to be pharmacy-level interchangeability, once the science, data, and patient safety support it.

At the same time that FDA is taking these measures, CMS has taken a number of steps to update payment policies to help patients take advantage of this competition.

As just one example, an HHS report earlier this year found that Medicare Part D plans spend $9 billion on brand-name drugs that have a generic alternative. Choosing generics in these situations would mean $3 billion in total savings for Part D, including $1.1 billion in out-of-pocket savings for patients.

We’re having CMS examine how to ensure that seniors are aware of all possible ways to lower their out-of-pocket costs. Almost nobody needs to be using a brand drug when high-quality, affordable interchangeable generics are available, and in a real market for drugs, they wouldn’t be.

This challenge connects to the second issue I want to highlight today: the need to update our HHS programs to ensure that they are getting the best deals possible for the people we serve.

Many of the ideas for doing so are laid out in the President’s blueprint, but today I want to highlight two actions we’ve already taken.

One was in Medicare Part B, where there is currently no price negotiation at all. Medicare gets the bill, and we pay it—plus an add-on fee calculated as a percentage of the drug’s price. This system can actually incentivize physicians to prescribe not the best option for a patient’s condition, but the most expensive one.

That is why, for the first time ever, we have introduced new tools that will allow Medicare Advantage plans to actually negotiate discounts for drugs covered by Part B—in total, $12 billion in spending for 20 million beneficiaries.

In 2019, plans will now have the ability to use step therapy to require patients to first try one clinically appropriate drug, before moving on to other options. This measure will give MA plans new leverage to negotiate discounts on drugs where they currently pay full price, with at least half the savings required to be passed on to patients in some form. For the first time, MA plans will also be allowed to use consolidated step therapy programs for drugs covered under Parts B and D, reflecting our desire to bring these programs closer together. This change was delivered in less than 100 days.

These new tools will be coupled with strong patient protections: Existing prescriptions will be grandfathered in, an expedited appeals process is required, and step therapy must be coupled with a care coordination plan.

Most important, patients exercise control over these tools—they have exit rights. To borrow a familiar phrase: if you don’t like your plan, you don’t have to keep it. These negotiation tools will only be as common as patients want them to be.

We have also announced a new set of negotiation tools for Medicare Part D plans in the 2020 plan year: the power to use indication-based formulary design and management.

Today, when a plan covers a drug for one FDA-approved indication, it has to cover all indications. This can mean that a more appropriate or more affordable drug may not be covered because the plan has already been required to cover a therapeutic alternative. Allowing indication-based management will mean more tailored choices for patients and more power for Part D plans to bring down drug prices.

But again, patients maintain power over the system: If they want to vote with their feet, away from MA plans and Part D plans that use these tools, they can do so.

This is a marked contrast from the alternative path for our drug markets, the one we may well end up headed down if industry resists real competition and negotiation.

On that alternative path, patients lose choices and they lose exit rights. We don’t believe that’s what American patients want, and we know it’s not what industry wants. The best way to show that, then, is to embrace the new paradigm.

The tools I just mentioned are a long awaited effort to bring tougher competition to how Medicare pays for drugs. But in a way, they are also hardly novel. This administration is just bringing the latest private-sector innovations to bear on behalf of our seniors and the American taxpayer.

There are more ideas out there for better negotiation and competition. One of them is the concept of value-based purchasing for drugs, an idea for which the pharmaceutical industry has long expressed support.

It’s intuitively appealing: Patients and their insurers should only have to pay for a drug if it works for them.

We believe this idea does have real potential. Since the release of the drug pricing blueprint, CMS approved the first-ever state plan amendment for a Medicaid program to negotiate value-based supplemental rebates, in Oklahoma. There are a number of questions and ideas raised in the President’s blueprint about ways that Medicare and Medicaid policies may be standing in the way of value-based arrangements. We also need to enable creative payment mechanisms, like payment over time and subscription, site license models of payment.

We certainly don’t want government standing in the way of private arrangements that reliably deliver lower costs.

But I want to be very clear: Value-based contracts are not going to be the main answer to the high prices faced by American patients.

We all know widespread use of these arrangements is not around the corner. In many situations, they will never be practical.

That is why we have made them a piece of our vision, but just a piece.

Our immediate goal is lower net prices and lower list prices, and our more immediate actions are aimed at using the tools we know are successful—competition, negotiation, and pricing incentives—to effect that outcome.   

Lower prices for drugs may mean, in some cases, slimmer profit margins. For other parts of the drug market, our plans may involve transforming business models and contractual arrangements.  Our task is to change the rules of the road to remove the constant incentives and rewards for higher and higher list prices, to bring more negotiation and discounting to government programs by using the best tools already well-developed in the private sector, and to reduce patient out-of-pocket expenses.  When we change these rules, the market players will reorganize their models and practices around these different axes.

President Trump isn’t going to accept inaction. He has the mettle to change this system. He will deliver results for the American patients who need relief. As I’ve said, we will examine every avenue for change, as long as it is effective and respectful of choice, innovation, and access.

Thank you very much.


Content created by Speechwriting and Editorial Division 
Content last reviewed on September 13, 2018