Two years ago this month, President Trump promised the American people that he would stop drug companies from “getting away with murder” with their annual ritual of price increases. Since then, his historic actions on drug pricing have produced historic results. One official measure of drug price inflation was actually negative in 2018, for the first time in almost 50 years.

But many problems remain. This January, drug companies once again announced large price increases — by one analysis averaging around 6 percent per drug. This annual practice of large price hikes must stop, and prices must come down.

Drug companies defend themselves by pointing out that these annual increases are on the “list price” of drugs. List prices are typically reduced by additional payments to middlemen such as pharmacy benefit managers and health insurers. These payments, known in the industry as rebates, are now a standard practice in drug purchase contracts. Accounting for these payments, overall drug spending by insurers and patients does not rise as much as the list price increases might suggest, so drug companies claim that the annual list price hikes do not really matter.

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But Americans know better, because increases in list prices hit their pocketbooks. Each January, many Americans see their insurance deductibles reset, and they have to start over again paying out of pocket — based on list prices — for the drugs they need. This can mean thousands of dollars in drug costs for the 47 percent of Americans in high-deductible health plans. Meanwhile, for especially expensive drugs in Medicare Part D, patients must pay coinsurance, which is calculated as a share of list price.

Drug companies make these annual price increases because the pharmaceutical market is almost the opposite of a real market. Pharmacy benefit managers, hired by insurers and employers, choose which drugs are covered, and a drug with a higher list price is often a more attractive choice to cover than a cheaper competitor.

Why? Higher prices allow drug companies to make bigger rebate payments, which go to pharmacy benefit managers, insurance companies, and employers, rather than to patients.

In a functioning free market, competition drives down prices. Most drugs, including branded drugs, have competitors. But in the broken drug market we have, prices keep rising to make more room for bigger rebate payments. Drug companies’ press releases about this year’s price increases laid out this dynamic explicitly, pointing that many price increases are entirely captured by rebates.

Fundamental changes to this system are necessary, and we have already seen some positive changes in behavior. From May 2018, when the president and I released the Health and Human Services blueprint for lowering drug prices, through the end of the year, drug companies took 57 percent fewer price increases on brand drugs than in the same period in 2017. Some companies, such as Amgen, Merck, and Gilead, cut the list prices on certain drugs. The analysis by Rx Savings Solutions that found the 6 percent average price increases in 2019 noted that was lower than the 9 percent average in 2018.

But the definition of success for Americans and for President Trump will be lower list prices — not flat net prices or smaller and fewer list price increases.

The Trump administration has taken significant action since the release of the drug-pricing blueprint. For instance, thriving generic drug competition can drive down drug costs for patients. The Food and Drug Administration approved a record number of generic drugs in fiscal year 2018, beating the record it had set the year before. According to the Council of Economic Advisers, generic approvals under the president have already saved consumers $26 billion. Meanwhile, the FDA also approved a record number of new drugs and biologics in 2018, often providing new competitors for existing drugs.

But in other areas the situation is much worse. The U.S. pays almost twice as much as our peer countries do for the most costly physician-administered drugs in Medicare, because there is no negotiation and often little competition. The president has proposed a model to fix this situation by securing for Americans a share of the discounts that companies voluntarily give other countries.

The administration has also proposed other incentives specifically to drive down list prices. The president proposed the first-ever requirement that drugs’ list prices be disclosed in television advertising. We are also working with Congress on legislation to undo the Affordable Care Act’s limits on the penalties manufacturers pay to the Medicaid program when they raise their list prices faster than inflation.

The president has helped empower patients as consumers by signing two pieces of legislation to ban pharmacy gag clauses, which prohibited pharmacists from telling patients about more affordable ways to pay for drugs. According to a University of Southern California study, patients are likely paying more in copays than they would need to pay in cash in almost a quarter of prescription transactions.

Any system in which so many Americans owe more for a copay than the actual cost of the drug is clearly not set up to serve them. Any market where price increases make a product more competitive is nobody’s idea of a functional market.

All options are on the table to fix this system, as long as they respect drug safety and keep patients at the center. President Trump is willing to work with Republicans and Democrats to achieve lower prices. He will continue taking action until we have a truly competitive market for prescription drugs — one in which prices will finally go down, not up.

Alex M. Azar II is the secretary of the U.S. Department of Health and Human Services.

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  • You can’t argue with people who are blinded by reality. In no way I am defending the drug industry but if it comes to place blame you can’t dished out one sided and you have to recognize the fact that it has evolved over the years to the point that we are at. There was once a gubernatorial race where one of the candidates running for the office said o the campaign that he was in jail for stealing and they should elect him as he stole enough that he does not have to do it anymore. It can apply here as they were part of the system maybe they have the knowledge how to stop this nonsense. To place the blame on the administration who came into the game 2 years ago is nothing else but partisanship. Where was the previous administration and congress before this administration came into power. Let’s place the blame where it belongs and once we recognize it collectively can solve it. I once asked a pharma executive how come the prices charged in the US are way above any other country ? the reply was because you can afford it. This did not come about in the last 2 years this has evolved over many years and our politicians collectively democrat and republican were part of it

  • We can’t expect an industry insider like Azar, to begin to understand the problem. While he touts the marketplace, he pretends that the current situation is not a groups of thuggish protected monopolies. Azar has been using his postition to spread lies and propaganda. There is no reasoning with a person who has already justified obscene drug prices, and refused to count the number of American deaths, hosptializations, lost jobs, and other negative indicators, that show how badly the system is failing.

    Ghouls like Azar and his soul mate Trump, see the suffering if millions of Americans as an oportunity for profiteering. The pharma propaganda about posting drug prices in the never ending misleading advertising on TV, shoud have been laughed at. Instead a bunch of gullible marketers/journlists repeated it, without analyzing it at all.
    In a country where pharma propaganda, is reprinted as written by mass media, it is highly unlikely that this crooked Trump appointee will come up with anything beneficial. Anyone on this site should be able to see how little coverage this important topic has gotten in American mass media. No one noticed how much money the various local papers, magazines, and TV Networks depend on phamra and industry advertising. The negative effects, like people dying or being re hospitlaized because they could not afford a basic medication have been effectvely consored. A Single Payer Plan would elimiante most of these nonsense, which was what the APA was supposed to do. Americans are being Gas Lighted at every turn, as people die or do without to enrich a few pharma CEOs and politicians.

    • Your vitriolic commnet amazes me. The issue with the drug pricing was not created by neither one of them Matter of fact this is the first administration that is not in cahoots with the industry and is trying to address it head on. Your predecessor goody to shoes and his democratic cohorts never even tried to address it as they are busy focusing on railroading the efforts of this administration .Do grow up and face the reality.

    • Mr Hold,
      You are among many Americans who were duped, hoodwinked and hornswpggled by an underhanded Psi Ops campaign. The current administration put industry insiders in charge of these agencies. People like Alex Azar, who made millions gaming the system and fighting any attmept to lower drug prices. The previous administration had too many people fighting any attempt to lower drug proces, these people had all taken money form the industry. If you recall the ACA or even Bush’s cratering to the pharma industry when he allowed the industry to avoid any gov’t deal to lower drug prices for the Medicare part B program.
      The industries made sure their interests were ensured, in the ACA and Medicare programs, effectively undermining any lowering of drug prices, or healthcare. People need to pay attention, we do not have “Free Market” healthcare. We have monopolies, controlling the system. I guess you must have missed the Epi Pen debacle, they cahrged as much as they could, because they could. No one else was allowed to just create a similar product and sell it in the US, due to laws that allow a kind of market protection.

      Less and less people are believing the nonsense from Reality TV, people are catching on. The refusal to fix drug pricing was due to Both Sides, and a corrupt industry that payed our elected officials to obstruct any improvement. If you read the papers it is really clear that the drug industry is running a propaganda campaign. Now that we have some peop in congress, that are nto beholden to the drug industry, we might get to the bottom of it. A Medicare for all or Universal Healthcare system requires a new way to deal with drug prices. The Pharma industry has become a criminal organization, and needs to be reigned in. American people deserve better!

    • David Hold,

      Eli Lilly is one of the companies under attack for drastically increasing insulin prices. Azar was the president of Eli Lilly during the price hikes. He has become incredibly wealthy doing the opposite of what is being proposed.

      One could say it’s a smart move in the same way that using a jailed forger to help authorities identify other forgeries, but it’d be a bit naive to believe that’s the case here.

  • I’m a bit confused. The rebate model was dismantled in the significantly less important world of advertising/media agencies due to inherent conflicts of interest and transparency issues. How is this allowed to go on in such a critical sector? Seems like Congress needs to address these “rebates” for what they really are – kickbacks.

  • Mary Ruwart rightly touches on the R&D cost as one of the major drivers of final cost. However, not all of it can be attributed to regulatory demands. The current drug development paradigm is rather inefficient with misaligned incentives. Drug development is ripe for disruption. Emerging Asian companies are challenging the status quo by reducing development costs. https://lnkd.in/fQiWPzs

  • As any Economics 101 student knows, manufacturers pass their costs on to consumers. Their biggest cost is R&D, which is increasing exponentially every year, primarily due to the FDA’s increased regulatory demands. These additional regulations don’t enhance safety: the withdrawal rate of FDA-approved drugs from the market have hovered around 3.4% for decades. Until this excessive annual increase in regulatory demands is addressed, drug prices will continue to rise tightly correlated to soaring R&D (https://www.statnews.com/2018/10/01/changing-1962-law-slash-drug-prices/). Since Alex Azar was primarily a lobbyist for Lily, as opposed to a researcher or regulatory VP who had to deal with this problem daily, he may not be aware of the relationship between higher drug prices and more (and needless) regulation. I’d be happy to share the studies demonstrating this correlation with him, should he wish to become aware of the real driver behind soaring pharmaceutical prices.

  • Tiboe, you saved the best for last: “Perhaps a previous head of a drug company shouldn’t be the one saying he wants to bring prices down.”
    Alex Azar was CEO at Eli Lilly when they DOUBLED prices on insulin during the 5 years he was there. Doubled. It is hard to read this editorial with a straight face, while diabetics ration insulin and die because they can’t afford it. Sec. Azar may know of what he speaks, given his familiarity with raising prices on a life-saving drug that was discovered in the 1920s and for which the patents were donated to academia for one dollar by its discovers. Shame on him.

  • Thank you for this information and perspective. This is an area where you can be a hero to a vast majority of people in this country–regardless of political party. I’m and Independent voter. I’d give you and Pres. Trump loud, sustained credit if he solved this problem.

  • None of this will reduce drug prices, as we have seen in the year since the release of the Drug-Pricing Blueprint. In fact, overall, drug prices are rising.

    Why? Because the US refuses to negotiate for drugs like every other developed country in the world already does.

    America taxpayers pay for the initial development of the vast majority of drugs; why are we getting some of the profits? Instead we pay the highest prices in the world, by far. Prices that are causing people to ration their drugs and go bankrupt.

    Perhaps a previous head of a drug company shouldn’t be the one saying he wants to bring drug prices down.

    • Oh, she read it and she’s right. He’s had over two years to bring down prices on drugs and they have only managed to limit some of the rebates to the middlemen. Consumers, as usual with this pack of money hungry clowns, get squat. The government assistance hardly reaches those elders and disabled who need it the most. For real change to take place we should be creating resell markets that bring the drugs back to the US cheaply from countries that benefit from drastically reduced prices in countries that actually care about their people.

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