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Remarks to the National Business Group on Health

Alex M. Azar II
The National Business Group on Health
April 11, 2019
Washington, D.C.

Today’s trends in healthcare spending are unsustainable, and the results we get are unacceptable. To deliver Americans better care at a lower cost, we at HHS know we need to do more to disrupt the status quo. But you [private-sector employers] need to do more, too.

As Prepared for Delivery

Thank you for that introduction, Brian [Marcotte], and thank you all for welcoming me here today.

I’m glad to be here, because all of you represent a hugely important force in our healthcare system—in many ways, just as important a force as the federal government.

Private-sector employers provide health insurance for 180 million Americans—more than Medicare and Medicaid combined, and more than half of all Americans. While people often look to the federal government to drive changes in American healthcare, all of you have a crucial role to play too. I suspect many of us share the same vision for American healthcare, and each of us works toward it for those we serve—your employees in the private sector and the beneficiaries of our programs at HHS.

We all want a system that’s affordable. No American should be going bankrupt due to the cost of healthcare services. No American should be stuck with a shocking surprise bill when they leave the hospital.

We all agree that we need a safety net for our vulnerable citizens, that we need to maintain the promise of Medicare for our seniors, and that we need to do both in a sustainable way. The cost of healthcare services and prescription drugs should be accessible, transparent, and, to the extent possible, predictable.

We also want a system where the patient is empowered, and in control—not left at the mercy of decisions and forces they don’t understand.

Almost every one of us, at some point, has felt how powerless today’s system can make patients feel. How many of you have tried to find out, at some point, how much a major healthcare procedure costs, before you get it?

I suspect that, even those of you responsible for hundreds of millions of dollars in patient claims have rarely succeeded when you try. I’m responsible for a trillion dollars in patient claims each year, and I still can’t get an answer!

Finally, we all want a system that’s high quality— a system that treats you like a person, like a valued patient, not like a number.

Quality care also means quality outcomes, and care that keeps you healthy, rather than only covering what you need once you’re sick.

So, how do we move to that kind of system? How do we deliver the affordability that American patients need, the options and control that they want, and the quality that they deserve?

I believe most of you in this room share this administration’s view on the answers to this question: We need new levels of competition in healthcare, so that market forces can increase quality and drive down costs just like they do throughout the rest of our economy. We need transparency around price and quality, so that individual consumers, and, in some cases, third-party payers, can drive that transformation.

But today, because those forces are too often absent, our system is unaffordable: unaffordable for American families, unaffordable for American employers like you, and unaffordable for the American taxpayers—which also includes all of you.

Half of American families fear that a major medical expense could bankrupt them. The average four-person American household, when you include employer contributions, spends a stunning $28,000 per year on healthcare costs.

Even seniors on Medicare face substantial costs, such as those who have hit the catastrophic phase of Medicare Part D, as more than a million seniors do each year, facing upwards of $5,000 in out-of-pocket drug costs.

These costs add up for the businesses where you work: Private health insurance expenditures, mostly borne by employers, rose from $898 billion in 2011 to almost $1.2 trillion in 2017.

By 2029, growing at about 5 percent a year, these expenses are set to hit $1.9 trillion.

These problems demand solutions: We need to provide Americans with financial peace of mind, we need to drive down underlying healthcare costs by harnessing competition and paying for value, and we need to do it in a way that is sustainable for the government and for our economy.

Today, I want to focus on one particular reform we’ve put forth around prescription drug pricing, and explain why we believe it’s such an important way to protect Americans from unaffordable expenses while also using competition and transparency to drive down underlying costs.

I’m referring to our proposal to replace today’s system of backdoor rebates in Medicare Part D with a system of upfront discounts, delivered to the patient at the pharmacy counter.

For too long, our prescription drug pricing system has operated in the shadows, serving entrenched interests: drug companies who set these prices so high, and the pharmacy benefit managers who receive tens of billions of dollars in rebates without patients, or the employers who pay a big chunk of the bill, ever knowing where the money goes.

We know that the proposal we’ve put forth in Part D is a bold one, and one that may affect practices in the commercial market, too. We understand such a shift can provoke some anxiety. But we believe that replacing rebates with upfront discounts will be an immensely positive step for patients, employers, and prescription drug markets overall.

In today’s system, rebates aren’t being passed on to patients who need them most, those who require high cost drugs. Instead, they’re being used to lower premiums for everyone, which creates at least two significant problems.

First, too many patients are not getting real insurance protection. Rebates on expensive drugs they need are being spread across every beneficiary of the drug plan. Worse, in the commercial market, some share of these rebates is being retained by the plan itself. As many have pointed out, this means we have the opposite of real insurance: the sick are subsidizing the healthy rather than the other way around.

Second, this perverse system has real impacts on health. You provide health benefits to your employees not just to offer financial protection, but to improve their health. While today’s system of rebates has helped restrain premium growth, it’s left too many patients with chronic illnesses or other serious conditions out in the cold. Affordable premiums are important, but they don’t matter if a sick patient at the pharmacy is met with an eye-popping bill they can’t afford—and has to walk away without their medications.

Our proposal around rebates would start to change that. Under our proposal, rebates in Medicare Part D, which in 2017 totaled more than $29 billion, would have to be passed directly to patients, right at the pharmacy counter.

Imagine that: $29 billion of discounts, not out there somewhere floating in the ether, but actually reflected in seniors’ pocketbooks, at the pharmacy counter, starting January 1, 2020.

Importantly, this isn’t just about ensuring that rebates are passed on at the pharmacy counter. It’s also about ensuring that drug negotiation is as transparent as possible, so there can be real competition among the drug options a patient might have. Today, the rebate system is too often used to block the competition that patients and employers need.

I’ll give you a particularly egregious example. A couple of months ago, a drug company introduced a new generic version of a common asthma inhaler.

If you want to buy this new generic without insurance, just paying cash, you can expect to pay $35 or less for a month’s supply.

That’s the generic’s list price. Compare that with the list price of the brand name alternative, which is almost $60.

But when the generic hit the market, pharmacies across America got a notification from at least one large middleman that said essentially the following: We won’t cover the generic. If someone comes in with our insurance, you cannot process the generic with their insurance card. We’ll only cover the brand drug.

If you’re wondering just how covert some of these rules are, by the way, I’ll let you know how we found out about this notice: Somebody posted about it on LinkedIn. That vaunted source of important medical news: LinkedIn!

By one estimate, a quarter of patients will pay more at the pharmacy counter by using their insurance to purchase that brand drug than they would if they just paid cash for the new generic.

As you all know, the reason the drug plan wants patients to take the brand drug is because the brand drug gives the drug plan a big rebate.

That’s how broken our system is: When a new option comes onto the market, instead of pharmacies across America being told, “Hey, there’s an affordable new option, you should tell your patients about it,” the insurer tells them, “We’ll only cover the expensive incumbent option.”

That’s just one story. We’re continuing to hear about other generics, or brand drugs that have cut their list price, encountering the same issues, struggling to get placement on insurers’ formularies.

Hearing these kinds of stories, about how broken our system is, is infuriating to me. It should be infuriating to you, too, that today’s shadowy system of rebates is holding back options from the patients you cover.

Replacing the rebate system with upfront discounts means an end to those kinds of shenanigans, an end to the sick subsidizing the healthy, and the beginning of a prescription drug market place with real competition and transparency.

Now, we know that replacing rebates with upfront discounts will be a significant change to today’s drug supply chain.

The comment period on our proposed rebate rule ended this week, and we are going to pay close attention to all the input we receive from stakeholders, like you.

We’ve already taken steps to ease any transition. Last Friday, we announced a new measure to ensure that we can implement the rebate rule, if finalized, without excessive disruption to the pricing of Medicare Part D plans.

Using demonstration authority within the Medicare program, we will be offering Part D plans more certainty in formulating their bids over the next two years, allowing us to go forward with the implementation of a rule without unnecessary risk of premium hikes.

We’re taking these steps because we know the benefits of a change will be huge, and I want to highlight briefly just how important we believe the rebate rule to be.

It plays into each of the strategies we’ve pursued for lowing prescription drug costs: increasing competition, improving negotiation, creating incentives for lower list prices, and lowering out-of-pocket costs.

Any approach to drug pricing that does not tackle the issue of rebates—whether through our proposed approach or otherwise—will not deliver the results we need on any of those fronts.

We know that rebates are blocking competition, because there’s no other reason why patients are still being dispensed brand drugs when more affordable generic options are available.

We know that rebates are a key driver of higher list prices, because drug companies and PBMs tell us that list price increases are captured by higher and higher rebates.

We know that rebates aren’t lowering patients’ out-of-pocket costs, because we know that patients have to spend through their deductibles based on list price, without rebates helping them at all.

So anyone who stands for rebates stands for ever-higher list prices, and stands against transparency and lower patient out-of-pocket costs at the pharmacy. It’s that simple.

Now, our primary focus in this effort is the seniors who need better access to affordable medications, whom we can directly help with our Part D proposal.

But we want to encourage a shift in the commercial space, too, because those who manage benefits for employers together cover prescription drugs for many more Americans than Part D does. As many of you know, the NBGH conducted a survey of large employers last year that showed a clear desire for change in the rebate system.

More than three in four of respondents from large employers said they do not believe rebates are effectively driving down drug costs. We agree.

More than half of the respondents were worried rebates didn’t help patients at the point of sale. We agree.

More than 90 percent of respondents said that they would welcome an alternative to rebates. We agree—and we’ve got one.

While our plan for Part D would not technically extend to the commercial market, we were clear in our proposed rulemaking that enforcement of this rule has to take into account the possibility of negotiations bleeding between the Part D market and the commercial market.

Certainly, we hope that our decision to be the first mover will help you drive positive reforms.

As a policy matter, we believe that the need for upfront discounts is even greater in the employer market than in Part D.

In Part D, we at least have statutory requirements that require rebates to be passed on to beneficiaries—not necessarily to the patients at the pharmacy counter, but in some form, whether lower cost-sharing or lower premiums. As all of you know well, there is no such guarantee in the commercial space.

Thankfully, we’ve seen the beginnings of change in the commercial space. As many of you know, last year, United Healthcare announced that they would be passing on the value of their rebates directly, at the pharmacy counter, for patients who are on fully insured United plans.

They’ve now had about a year to assess the policy, and the results are remarkable. According to their estimates, patients are saving $130 per eligible prescription.

Maybe most important of all, they’ve seen noticeable increases in adherence, between 4 and 16 percent.

That hints at the reason why they decided to pursue the proposal first in their fully insured plans.

They predicted that bringing discounts to patients, at the pharmacy counter, would increase adherence so much that it would meaningfully reduce their health costs.

They were right, and all of you can imagine what kinds of savings you can generate if the people you cover had higher medication adherence.

Now, United is so pleased with the results that they will actually refuse to write new self-insured policies that don’t fully pass on rebates at the pharmacy counter.

Clearly, change is coming to prescription drug markets. I want to conclude today by expressing optimism that together, we can bring similarly sweeping change to the rest of healthcare, too. Bringing down prescription drug costs is vital, both for patients’ health and for their finances. But we also face many of the same problems in the rest of healthcare: opaque prices, lack of competition, and third-party systems that leave patients at the mercy of a system they don’t understand or control.

The same NBGH survey I cited earlier about dissatisfaction with the rebate system did find a number of positive trends in how employers pay for healthcare services.

The share of respondents who said they were trying direct contracting with health systems and providers, for instance, rose from 3 percent in 2018 to 11 percent in 2019. The proportion of companies working with centers of excellence for costly conditions rose by more than half. We at HHS are also working to move more and more of our payments into arrangements that reward quality and outcomes.

I have identified this shift toward value as one of my four priorities as secretary, and we’re relying on the same principles that animate our work on prescription drugs: competition, transparency, putting the patient at the center. This year, HHS will be pioneering bold new models to drive better value in healthcare services.

These efforts will be focused on empowering patients—our beneficiaries, your employees—with transparent, accessible information about how to control their own care.

HHS is working on measures around interoperability of health records and price transparency that will put more information at a patient’s fingertips than ever before.

But you can do your part, too. In the last couple decades, employers have taken the lead on adopting consumer-directed health plans, with higher deductibles that should incentivize patients to choose care options with more competitive prices.

This is a positive step—if patients have the tools they need to shop around and drive value. But too often today, they don’t have those tools.

We believe there may be a role for employers to connect patients with providers or some other trusted intermediaries, who can act as guides through the healthcare system.

To deliver on the real promise of consumer-directed healthcare, patients need more information, but they also need a system that supports them in using that information.

This is an area HHS wants to explore, as well, so let us know where HHS can assist your efforts, and we’ll look to innovations in the private sector to improve our own programs.

We need to undertake this campaign on every front possible. Today’s trends in healthcare spending are unsustainable, and the results we get are unacceptable. To deliver Americans better care at a lower cost, we at HHS know we need to do more to disrupt the status quo. But you need to do more, too. We can deliver American patients the options and control they want, the affordability they need, and the quality they deserve, but we have to work together to make it happen. Thank you so much for the honor of addressing you all today.

Content created by Speechwriting and Editorial Division 
Content last reviewed on April 12, 2019