Testimony from Alex M. Azar II on President Trump’s Drug Pricing Plan before Committee on Finance

Mr. Chairman, Ranking Member Wyden, and Members of the Committee, thank you for the opportunity to appear before you to discuss an important issue: why American prescription drug prices are too high, and what we are doing about it.

Drug pricing was one of the very first topics I mentioned before this committee during my confirmation process earlier this year. I know members of this committee are serious about taking on this challenge, and I appreciate your efforts in this area.

From Day One of his administration, President Trump has directed HHS to make drug pricing a top priority. Earlier this year, the President’s 2019 Budget laid out a range of proposals on the issue, including reforms to Medicare and Medicaid.

In May, building on the budget, the President released a blueprint to put American patients first. This blueprint is a plan for bringing down drug prices while keeping our country the world’s leader in biopharmaceutical innovation. It lays out dozens of possible ways HHS and Congress can address this vital issue.

We face four significant problems in the pharmaceutical market: high list prices set by manufacturers; seniors and government programs overpaying for drugs due to lack of the latest negotiation tools; rising out-of-pocket costs; and foreign governments free-riding off of American investment.

The President’s blueprint lays out four strategies for tackling these problems, and we have begun acting on each of them already.

First, we need to create the right incentives for list prices. Everybody in today’s system makes money as a percentage of list prices, including pharmacy benefit managers, who are supposed to keep prices down. Everybody wins when list prices rise except the patient, whose out-of-pocket cost is typically calculated based on that price.

One of HHS’s initial actions is working to require drug companies to include their list price in advertisements. For example, Americans deserve to know the price of a wonderful new drug they hear about on TV—before going to ask their doctor about a product they may find unaffordable. More fundamentally, we may need to move toward a system without rebates, where PBMs and drug companies negotiate fixed-price contracts. Such a system’s incentives, detached from artificial list prices, would likely serve patients far better.

Second, we need better negotiation for drugs within Medicare—that is what President Trump has promised, and it’s what we’re going to deliver.

In Medicare Part D, HHS will work to give private plans the market-based tools they need to negotiate better deals with drug companies. Part D is a tremendously successful program, but it has not kept pace with innovations in the private marketplace. For instance, well-intended patient protections may be preventing plans from appropriately managing utilization. While everyone agrees on the importance of the drugs in the protected classes, manufacturers often use that list as protection from paying rebates.

We also want to bring negotiation to Medicare Part B, physician-administered drugs. Right now, HHS just gets the bill, and we pay it. This system may actually be driving doctors to prescribe more expensive drugs, while potentially tempting manufacturers to develop drugs that fit into Part B rather than D. We are going to look at ways to merge Part B drugs into Part D and leverage existing private-sector options within Part B.

Third, we need a more competitive pharmaceutical marketplace. Thanks to the reforms Congress passed in the 1980s, America has the strongest generic drug market in the world.

But there are many ways that manufacturers still unfairly block competition. Since the rollout of the President’s blueprint, FDA has publicized the names of companies that may be abusing safety programs to block competition, and issued new guidance to help lessen the effects these actions may have on generic access.

Finally, we need to bring down out-of-pocket costs for American patients.

Since the blueprint rollout, CMS has reminded Part D plans that it is unacceptable to have gag clauses barring pharmacists from working with patients to identify lower cost options.

More broadly, we will work to ensure patients know how much a drug costs, how much it’s going to cost them, and whether there are cheaper options, long before they get to the pharmacy counter.

These are just some elements of an aggressive, long term plan to solve this problem we all care deeply about. Thank you again for having me here today. I look forward to taking your questions and discussing how together we can help American patients.