Azar Testified on Drug Pricing. Industry Yawns.

Health and Human Services (HHS) Secretary Alex Azar  was in front of the US Senate Health Committee for a hearing today on drug pricing. His prepared remarks freaked out the market open saying the US “fundamentally may need to move toward a system without drug rebates, where PBMs and drug companies just negotiate fixed-price contracts.”

Azar’s remarks also suggested the need for better negotiation for drugs within Medicare Part D, saying HHS will work to give private plans market-based tools that are needed to negotiate better deals with drug companies, whatever the hell that means. He also stated he wants to bring negotiation to Medicare Part B physician-administered drugs, and to look at ways to merge Part B drugs into Part D.

Any shift of drugs from Part B to Part D could actually be a net positive for PBMs due to the greater ability to keep costs lower via formulary management. So is he saying he’ll crush the PBM business model by getting rid of rebates, but then hook them up with more Part D volume? Weeks after yet another splashy Rose Garden event with Trump, who promised “voluntary, massive” drug price cuts, nobody in government, Wall Street or industry seems to know.

At the hearing, no additional details were given, and Senators leveled sustained criticism that Trump’s drug price reform blueprint may do very little to change drug pricing. Shares of most MCOs, PBMs and drug manufacturers have recovered since the announcement and today’s hearing, meaning nobody on Wall Street or in industry is concerned about it.

Hot take: Despite having a skilled and credible advisor in Azar, “President Deals” has little leverage over drug pricing, and nothing of any substance will result from his plan for voluntary price cuts. Moving Part B to D makes little sense vs a competitive pricing model. Nothing much will happen beyond more camera-ready B-roll for Fox News. And those who take and pay for drugs in America will continue to get the short end of the stick.

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John Gorman
John Gorman

Under John’s leadership, Gorman Health Group has become the leading professional services and solutions firm for government-sponsored health care, providing thought leadership and expert strategic, operational, and technology-based solutions. Read more

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