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Pink Sheet – Alex Azar And The Return Of Republican-Style Price Negotiation

Pink Sheet – Alex Azar And The Return Of Republican-Style Price Negotiation

Executive Summary

The nomination of a former drug industry executive to run HHS is obviously good news for the biopharma sector, but it does not mean that HHS will do nothing about drug prices. On the contrary, it may make some high-profile action against pricing outliers all but inevitable.

Alex Azar appears to be on a fast track to a relatively smooth confirmation as secretary of the US Department of Health and Human Services (HHS) – but the biopharma industry should expect drug pricing to be the subject of extra attention along the way.


The Senate Health, Education, Labor & Pensions Committee is set to kick off the confirmation process with a hearing Nov. 29. The HHS Secretary is formally reviewed by the Senate Finance Committee, but traditionally also has a hearing before the Senate Health Committee.


Given the current focus on tax reform and pending health care issues (including Obamacare Cost Sharing Reduction Subsidies and the reauthorization of the Children’s Health Insurance Program), both committees have ample excuse to put off consideration of the nomination if they consider it difficult or unwise. Instead, the Senate is kicking off the process with the first hearing just two weeks after President Trump formally announced his intention to nominate Azar – a former executive at Eli Lilly – on Nov. 13. (See sidebar.)


Azar was publicly identified as the likely choice several weeks ago, which served as the informal start of the vetting process. Clearly, the feedback from Capitol Hill was that Azar would be an acceptable choice, and the Senate is ready to move quickly.


That said, Azar’s industry experience assures that drug pricing will be a focus of the confirmation process, and the Administration is clearly ready to address that subject head on.


In typical fashion, Trump first announced the choice of Azar on Twitter – and pre-empted any claims that the pick means he has backed off of his pronouncements about drug prices being too high: “Happy to announce, I am nominating Alex Azar to be the next HHS Secretary. He will be a star for better healthcare and lower drug prices!” Azar’s decade of experience at Eli Lilly & Co. (including as head of the US business) already made questions about drug pricing inevitable for the confirmation process. Trump’s tweet shows that there is no intent to duck the questions.


Instead, the message will be that Azar’s industry experience makes him ideal to help address prescription drug costs, and that his prior government experience shows he knows how to make a difference in specific cases.


Office of Management & Budget Associate Director for Health Programs Joe Grogan made the first point during his appearance at the Prevision Policy/Friends Of Cancer Research Biopharma Congress Nov. 14. In Azar, President Trump has “chosen someone who understands how drug pricing works, how the [supply] channel works, how to mix things up, inefficiencies in how these programs work and inefficiencies in pricing that create bizarre distortions, where some people pay more than is fair and some people pay less than is fair.” (See sidebar.)


That is in keeping with the overall approach to drug pricing in the Trump Administration: the focus will continue to be on competition and consumer costs, rather than Medicare negotiation or reimportation.


Those themes have largely been spearheaded by FDA Commissioner Scott Gottlieb, with a focus on increasing generic competition, “ending the shenanigans” around anti-generic strategies, and lowering the cost of capital in drug development. Azar will also be able to speak to the issues around out-of-pocket costs that do not always relate logically to the underlying net price of the medicine. And he can also speak to the regulatory barriers that can interfere with different pricing approaches like indication-based or outcomes-based pricing models.


But that doesn’t mean there won’t be aggressive, direct interventions on specific products. On the contrary, one of the key messages in the confirmation process is that Azar has hands on, direct experience in negotiating lower prices during his past tenure at HHS.

The Cipro Precedent

Former HHS Secretary Tommy Thompson offered a preview of that message during a Nov. 14 interview on National Public Radio. When asked about the perception that a drug industry executive won’t take on drug prices, Thompson credited Azar with playing a role in negotiating a reduced price for Bayer AG’s antibiotic Cipro (ciprofloxacin) in the context of the anthrax attacks of 2001.


The Cipro example was just one case from the Bush/Thompson era of activist steps by the department to address a pricing issue. Thompson’s CMS Administrator, Tom Scully, took administrative or public relations steps to address several perceived pricing outliers, going after individual products like Idec Pharmaceuticals Corp.’s cancer therapy Zevalin, Mylan NV’s now-discontinued asthma inhaler DuoNeb, and AstraZeneca PLC’s blockbuster ulcer therapy Nexium.


In the wake of the controversy over Turing Pharmaceuticals AG’s price hikes for its toxoplasmosis drug Daraprim, the biopharma industry has already embraced the idea that some practices should be attacked as violating accepted norms; Azar will join HHS with a deep understanding of what those norms are. He is also likely to have good ideas of where interventions can have the biggest impact on sending messages to industry as a whole.


So don’t be surprised if this “industry friendly” pick for HHS starts his tenure with some tough actions against individual companies or products. That won’t be the start of price controls in the US – but it will be a sign that HHS can and does control individual prices when necessary.…