Alex Azar, in his own words, on consumer overpayments, drug pricing and opaque reimbursement schemes

It’s a complicated and opaque system.  All consumers deserve to know the cost and quality of what they are purchasing . . . They have tremendous amounts of price and quality data on all sorts of things—except for health care.  Our vision for health care is to fix that and give Americans the tools they need to become educated consumers.
— Alex Azar, Deputy Secretary of Health and Human Services (2007)


Alex Azar can obviously talk the talk: he understands how and why individual patients are overpaying for insulin and other drugs. The question is whether as Secretary of HHS he would walk the walk—holding accountable the manufacturers, PBMs, and insurers who together are making patients overpay.

Over the years Alex Azar has cultivated a public persona as an advocate of efficient market solutions and consumer empowerment. Yet as president of Lilly USA 2012–17, he also demonstrated  a willingness to sacrifice patient welfare in order to claim and retain for Lilly market domination in diabetes drugs. Would Azar, if confirmed as Secretary of Health and Human Services, deliver the most meaningful solution to today’s diabetes drug pricing crisis—downward pressure on list price via regulatory enforcement of point-of-sale consumer protections, including transparency on net drug cost to insurers? 

His remarks below, which we’ve excerpted from his public statements over the past decade, suggest Azar would instead facilitate the pharmaceutical sector’s push toward even greater opacity. His recent comments urge the need for “safe harbors in the kickback statute” and increased insurer access to patient data as tools to support value pricing. Azar argues that value pricing would reduce the perverse incentives that have caused list prices to skyrocket; he has not, however, suggested that value pricing would do anything to lower the list prices that have already pushed life-sustaining drugs like insulin beyond the reach of far too many insured and uninsured patients.

Deputy Secretary of Health and Human Services

February 2006, Aspen Institute, Berlin, Germany

  • “Government actions affect prices, prices affect investment, investment affects innovation, and innovation affects health. The more free competition there is in the pharmaceutical and medical device market and the more barriers to innovation governments remove, the more innovation and health the world will enjoy.”
  • “What makes a competitive market for insurance work, what makes consumer-driven health care with out-of-pocket expenditures for health goods work is informed, health-literate patients.”
  • “Of course, for this process to work, consumers need to hear about the new product and its new features. Only informed consumers can make rational decisions."
  • “. . . [C]onsumers are served best by free competition. Strong competition creates choices and better prices and benefits everyone. And it encourages sustainable innovation.”

January 2007, Heritage Foundation, Washington, DC

  • “It’s a complicated and opaque system.  All consumers deserve to know the cost and quality of what they are purchasing . . .”
  • “They can trade all manner of goods via eBay. They have tremendous amounts of price and quality data on all sorts of things—except for health care.  Our vision for health care is to fix that and give Americans the tools they need to become educated consumers.” 
  • “What’s the endgame here? Our goal is to enable Americans to access basic information about the health care they consume so that they can become more engaged, savvier purchasers.”

President of Lilly USA, LLC

November 2011 

  • “Therefore, as we are all asked to pay more for our care, and to act like true consumers, a vitally important question will be whether we will be able to determine the relative cost and value of various therapeutic options before deciding on the right one."
  • “A second big question is whether we will see innovations in how consumers pay for healthcare, giving them more flexibility to choose the care that is right for them. Today, pricing in healthcare largely occurs through negotiations between payers, providers, manufacturers, and others. Certainly this is not unique to healthcare-many industries, from automobiles to supermarkets, feature negotiations between wholesalers and retailers.”
  • “What sets healthcare apart from the rest of our economy is that as consumers, we almost never see the final retail price that has been negotiated on our behalf.” 

November 3, 2016, Manhattan Institute, New York, NY

  • “We're all here . . . because we want to find a solution to high out-of-pocket costs of prescription drugs that are experienced by too many Americans.” 

[T1DF: After this introduction, Azar then focused on value, not price transparency]:

  • “They don't like bearing an ever larger share of rising brand name drug prices before they go off patent.”
  • “Our outdated system for paying for prescription drugs is threatening to squelch patient access to this recent and revolutionary burst of innovation by shifting a crushing burden directly onto individuals.” 
  • “In other words, we're trying to usher in a golden age of medicines with a payment system that is in its golden years. That system needs to be retired and replaced.” 
  • “Everybody in the private healthcare sector must come together to fix how we pay for medicines because, if we don't, others very well may fix us.” 

[T1DF: Azar then sketched a history of drug rebating practice.

  • “So about 25 years ago we fell into a system of pharmaceutical rebates which worked fine, so long as insurance plans exposed patients to only limited cost sharing.“ 
  • “A larger rebate usually secured you a better placement on the insurer's or PBM's formulary, which meant patients pay less out-of-pocket for your drugs. The terminology was called ‘buying down the copay.’“
  • “The only problem is that nearly every player in the industry . . . make[s] more money when list prices increase. The fees that middlemen in this channel charge are based on a percentage of list price. So higher list prices generate more fees. If drug companies set their list prices higher, they have more room to offer larger rebates, to win better formulary placement from insurers and PBMs. It's those list prices that have generated all of the recent controversy.“ 
  • “No patient was ever supposed to pay those list prices but in recent years a growing number have been forced to do exactly that. Why? Because of big changes in how health insurance benefits are designed.“ 
  • “Instead of using the rebates that pharma pays to reduce that exposure for the medicines, the way it happened when originally conceived, that buying down of the copay, the third party payment system now uses that rebate stream either for profitability of players in the channel or to keep premiums lower.“ 
  • “The unfortunate victims of these trends are patients, so we've got to create a better system.“ 
  • “So what would a new system look like? Well, I think it has to have three broad elements. It's got to pay for value. It's got to protect patients, and it should promote competition.“ 
  • “Health plans have got to remove the internal bias they have against prescription drugs that are inherent in their plan designs.“ 
  • “We've signed multiple value based contracts with insurers that require us to pay larger rebates if our drugs don't deliver value.“
  • “To make these value based contracts easier to do, we've been working with the large health insurer Anthem, our neighbor in Indianapolis, to call for such policy changes as safe harbors in the kickback statute and the Medicaid best price rules.“ 
  • “What would also enable more value based contracts would be more systemic collection and sharing of real world evidence by healthcare providers. If we all had better data readily available, we would more easily be able to determine which drugs and which indications are truly producing great outcomes for patients. Payers could then reimburse us accordingly.“ 
  • “So long as list price is the basis of value in our industry, all of us will have a reason to keep list prices high, and more and more patients will be hurt when they walk into the pharmacy.“ 
  • “That means that a significant number of people who already paid premiums for their health insurance then end up paying more than their insurer does for a medicine.“ 
  • “That's not good for people's health. Numerous studies that we've done and others have done have shown that when patients have to pay more than 50 or $100 to fill a prescription huge numbers of them simply walk away. That renders them less healthy and more likely to rack up a big [medical] bill later on.” 
  • “Let's avoid the temptation to point fingers at one another for the harm that patients are experiencing.“ 

Alex Azar, Chairman of Seraphim Strategies LLC

February 2017

  • “There is a responsibility to get healthcare to those who can’t afford it, he said, but the question is over how to go about that.”

May 2017

  • “‘We have a problem, he said. ‘Patients are paying too much for drugs.’”
  • “What used to be a tool that was part of the process of negotiations between the pharmacy and the insurance company has now put the patient in the middle, often having to pay the bill, he explained.”
  • “It is not sustainable for patients to pay list price for a drug [when they go to the pharmacy]. Even if you cut the list price of drugs by 50%, that is still very expensive for a patient when they walk into a pharmacy. The fall-off rate will be gigantic on adherence.”
  • “It’s something for insurance and pharma to work together to solve as opposed to the government. How do we pull forward rebates? The company may be paying 50 to 60% rebate to the insurance company, but the patient isn’t seeing that. Somehow, we have to adjust that to solve the high out-of-pocket cost.”

September 2017 

  • “On the issue of drug pricing, Azar pointed to a large amount of misinformation permeating among the public and media. He said that drug pricing has been relatively stable over the past 5 to 10 years, but insurance benefit design changes have shifted more of the burden in employer-sponsored health care to employees.”
  • “Azar added that rebates have risen sharply with a concentration of power among pharmacy benefit managers (PBMs) and insurance companies. ‘They’re masters of negotiating rebates and they’ve brought down the net pricing of rebates. Effectively, they do their job really well,’ he said.”
  • “Azar said that cutting list prices does not change the equation at the point of sale for patients. He said brand competition is the magic key to lower drug prices, as seen when competitors to high cost hepatitis C antiviral drugs entered the market. ‘Within 1 year, a competitor hepatitis C vaccine entered the marketplace and rebates went up to 65% and net pricing of the hepatitis C vaccine is lower in the United States than the pricing in Europe with socialized medicine,’ he said. ‘Competition actually works because there is concurrent innovation.’”

About T1DF

The Type 1 Diabetes Defense Foundation is a nonpartisan Oregon-based 501(c)(3) nonprofit dedicated to advancing equal rights and opportunities for Americans with type 1 and other forms of insulin dependent diabetes. T1DF accepts no funding from the pharmaceutical, medical device, pharmacy benefit management, or insurance industries or from any organization they fund. We support regulatory frameworks in which manufacturers compete directly on innovation and price to consumers and where drug channel actors can engage in open and efficient price arbitraging, without price discrimination and asymmetries of information.

T1DF is currently a plaintiff in two cases that name Eli Lilly as a defendant: Boss, et al. v. CVS Health Corporation, et al. (United States District Court, District of New Jersey, No. 3:17-cv-01823-BRM-LHG — insulin pricing), and Bewley, et al. v. CVS Health Corporation, et al. (United States District Court, Western District of Washington, No. 2:17-cv-00802-RAJ — glucagon pricing).