T1DF's letter to the U.S. Senate H.E.L.P. Committee and follow-up questions regarding the nomination of Alex Azar

Senate HELP Azar.jpeg

Dear H.E.L.P. Committee Chairman, Ranking Member, and Committee Members:

As you and your staff are preparing follow-up questions to submit to Mr. Azar by Friday, we hope you will take into consideration the clarifications we offer below and the potential follow-up questions we list at the end of this letter.

I’d like to begin by thanking members of the H.E.L.P. committee for their bipartisan attention during yesterday’s hearing to the crisis now facing Americans with type 1 diabetes, for whom access to insulin and glucagon emergency kits isn’t an issue of choice or convenience, but a matter of life and death. As accurately described by Mr. Azar during a November 2016 talk at the Manhattan Institute, current drug-channel actors have collectively created a pricing crisis for the uninsured, and a “cost-sharing” crisis for those insured under high deductible and high cost-sharing benefit designs. 

This crisis has been caused by a dual pricing system based on reimbursement contracts. It’s not this system’s dysfunction, but rather its ruthless efficiency, that has caused list prices for 20-year-old insulins to skyrocket. The US dual pricing reimbursement scheme—which manufacturers are now attempting to export internationally—is designed to allow price discrimination, prevent arbitrage, and generate supra-competitive financial returns for all drug-channel actors, at the expense of consumers. During Wednesday’s hearing, Sen. Collins expressed concern regarding “co-pay clawback” schemes that can lead to consumers overpaying by $10 or $20 per prescription. But for heavily rebated brand-name diabetes drugs, the dual-pricing system is now forcing the uninsured (and some insured) to pay several times the net prices insurers pay. For example, current retail price for a glucagon emergency kit is $300; we believe the cost to insurers is $55.02 or lower. These kits may cost Eli Lilly and Novo Nordisk no more than $5 to produce. 

The excesses of this reimbursement regime, developed during the 1990s but exponentially increasing in recent years, have been incorrectly blamed on the Affordable Care Act. This confusion—correlation without causation—has facilitated calls for “pro-consumer” solutions to problems that do not exist. In the meantime, the pricing system actually responsible for skyrocketing increases in insulin list prices has been left unchallenged. This pricing system has forced uninsured individuals to pay skyrocketing list prices no corporate actors pay; it also allows insurers to price discriminate against insured individuals with chronic medical conditions, breaching the intent, and possibly the letter, of the anti-discrimination mandate of the ACA. As stated by Sen. Murray in her opening statement, ”[t]he last thing our HHS should be doing is encouraging more discrimination in our healthcare system."

T1DF thus commends committee members’ efforts, during Wednesday’s hearing, to shift the national conversation away from outdated assertions of manufacturer-only price-fixing and toward more specific questions regarding manufacturers’ specific responsibility as the actors who set list prices in a reimbursement system where other actors also contribute to and profit from high list prices. As acknowledged by Mr. Azar, when questioned on this topic by Sen. Baldwin: ”Everybody in the system owns a piece of this.” He also answered Sen. Kaine, when pressed regarding culpability for skyrocketing insulin list prices, "Everyone shares the blame here.” While this would include himself as former president of Lilly USA, we cannot exonerate other participants in a process that has gravely injured Americans who need insulin to stay alive.

As correctly stated by Mr. Azar, “the current system is not working for patients who pay out of pocket   … Insulin prices are high and they're too high. The system may fit for the stakeholders behind the scenes.” Senator Kaine also accurately described consumers as hostages rather than actors in this pricing system. Whether you are a free-market Republican or pro-consumer Democrat, you should understand that the status quo is not a sustainable option. 

A more equitable pricing system could take several forms. But all viable alternatives have certain characteristics in common. As outlined by Sen. Paul, these alternatives all allow for free price arbitrage (reimportation is an example of price arbitrage, though not necessarily the most practical). Truly viable alternatives also rely on net price transparency. Any alternative must, however, deliver to insured individuals the benefit of the “best net pricing of any commercial players in the system” that Mr. Azar explained, in his response to Sen. Franken’s questioning on drug prices, PBMs already obtain on behalf of insurers.

Free price arbitrage and net price transparency throughout the drug channel (from manufacturers to insurers) are not, however, on Mr. Azar’s agenda. Prior to the hearing, T1DF warned that, at this point in the US drug pricing crisis, general questions on ‘high drug prices’ will be met with vague replies on 'value-based pricing’ (“Activists Implicate Trump's Health Nominee Alex Azar in Insulin Price-Gouging Scheme,” TruthOut, November 28, 2017). As predicted, when specifically questioned by Sen. Bennet regarding his strategy to bring U.S. list prices within the range of European counterparts, Mr. Azar instead vaguely argued for a shift to a "value-driven" Medicare (for which he also advocated in his opening statement). When pressed by Sen. Whitehouse, Mr. Azar suggested that he would use Medicare as the value-based pricing Trojan horse because it has “enough concentration of life” to become a vehicle for "changing the [private health insurance] system.”  

Value pricing and outcome-based models, apparently preferred by Mr. Azar and supported by powerful interests like the Laura and John Arnold Foundation and their think tanks (e.g. ICER and Yale’s CRIT), do not constitute alternatives to the current reimbursement scheme. These models are variations on the current model and would perpetuate reimbursement contracting and dual pricing. In these systems, instead of being mechanically driven by increased rebates, the high public list price would supposedly be ‘scientifically’ validated by a central authority vested with the authority to thus fix prices (and thus create an actual price fixing cartel). The low secret net price would remain secret, albeit based on some new metric—whose only purpose might be to sound less like a rebate than the current post-sale volume discount on which T1DF’s current lawsuits focus. The approach Mr. Azar advocates would disconnect the point of sale transaction (consumer buying the drug) from the rebate transaction—thus increasing opacity and frustrating attempts by consumers to assess the actual net cost to plan of their drugs. Value-pricing systems would give manufacturers a license to inflate list price (life, and thus insulin, is priceless) while covering up for insurers’ overcharging in the guise of cost-sharing based on the public list price—as no one would be able to calculate, at the time of the POS transaction, the drug’s actual net cost to the third-party payer. 

We are grateful for Sen. Paul’s spirited defense of free price arbitrage, although the form he is advocates is impractical: all lawmakers should keep in mind that reimportation may aid insulin users in border states but cannot be a nationwide solution for any pharmaceutical that requires close cold-chain management. Sen. Paul understands that a free market pricing system relies on the availability—to consumers—of accurate price information and free price arbitrage among all market actors. Reimportation is just one example of price arbitrage, i.e. the ability of market actors to freely chose the supplier/vendor offering the best prices, services or products. Reimportation of drugs, i.e. price arbitrage between international healthcare markets, is impractical. Instead, U.S. consumers should be allowed to perform free price arbitrage at home, between U.S. health plans. Customers on the independent/ACA market should have access to full pricing information that would allow them to chose the third-party payer (insurer) who has negotiated the lowest net prices and that offers the best services. Americans on employer insurance should know that their—or their colleagues’—insulin actually represents a fairly modest cost to their company plan. And Americans who are uninsured would be able to compare pharmacies’ “cash prices” to payers’ net prices and then demand equal access to healthcare services and drugs. 

We are also thankful for Sen. Young’s inquiries regarding Mr. Azar’s statement he made on November 3, 2016, at the Manhattan Institute. Our outdated pricing system indeed creates a crushing burden on both insured and uninsured individuals. As president of Lilly USA, Mr. Azar continued the company’s participation in opaque reimbursement contracts with PBMs and insurers, knowing that large rebates were not reaching consumers. In November 2016, he acknowledged, “[Eli Lilly USA] may be paying 50 to 60% rebate to the insurance company, but the patient isn’t seeing that.” Mr. Azar also admitted that at the other end of Lilly’s reimbursement contracts “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.” Mr. Azar has also publicly recognized that when Lilly raised list prices to accommodate massive rebating to insurers, this system caused actual harm to people with diabetes: “[W]hen 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” (Manhattan Institute, 11/2016). Yet list price for Humalog has increased by over 1,000% since Lilly first brought it to market in the late 1990s. With rebates on Humalog now estimated to be 75%+ off list price, some patients may now pay as much as four times their insurer’s net drug cost. Mr. Azar also oversaw, during 5 years as president of Lilly, a greater than 100% increase in its list price for emergency injectable glucagon kits. High list prices for glucagon kits deter insulin users from buying and carrying these kits—which treat severe hypoglycemia, a potentially life-threatening side effect of Lilly’s own insulin products.

We also hope committee members paid close attention to Mr. Azar’s reluctance to reply on the record regarding corporate accountability and personal executive liability stemming from corporate misconduct. We are grateful that Sen. Warren raised these crucial questions in relation to present investigations and patient insulin lawsuits (as well as Lilly’s past corporate history). We are also grateful for Sen. Casey's requests that Mr. Azar “commit to answering all questions on the record,” though again, we noted Mr. Azar’s evasive answer. These questions—and Mr. Azar’s repeated refusal to commit to basic accountability and transparency standards—should be a matter of bipartisan concern when considering the nomination of any potential HHS appointee recently departed from an executive role in an industry he would be tasked with regulating. From one perspective, Sen. Young may be right when he says, ”If anyone can help solve this problem [drug price crisis], it's Alex Azar.” Though he may aid the solution not in the capacity of HHS Secretary but rather as potential adverse witness in one of the insulin and glucagon overpricing lawsuits filed by T1DF and now pending in the U.S. District Court for the District of New Jersey. Sen. Warren’s questions were not rhetorical; and Mr. Azar’s refusal to support corporate accountability should raise a red flag. He stated during the hearing that he is committed to "the American people." Yet so far he has refused to commit on three key questions: (1) personal liability for executives in fraudulent corporate behavior, (2) specific industry accountability for list prices and manufacturers’ broader role in the dual-pricing system, and (3) answering all questions posed on the record. 

We respect Sen. Paul’s and Sen. Isakson’s outrage regarding pharmaceutical companies "gaming the [patent] system." We hope they will also share our outrage regarding insurers gaming the drug dual-pricing system, charging patients for list prices they do not pay, and in the process cooperating with manufacturers in inflating list prices that the uninsured are forced to pay. 

On the subject of insurers’ overcharging insured individuals, we were, finally, troubled by Sen. Hassan’s suggestion that ending a current system recognized to place an untenable burden on people with type 1 diabetes (among others) would cause premiums as a whole to increase. It’s disingenuous to hint that lower cost-sharing will raise premiums while failing to acknowledge that under the current system patients using highly rebated drugs like insulin aren’t “sharing” the cost of their drugs but paying the entire cost and beyond. This kind of premium-threatening language is especially troubling given the allegations in T1DF’s current lawsuits that patients are being defrauded by industry actors. T1DF must protest any suggestion to the American public that we should continue robbing Peter because Paul’s premiums will otherwise increase. (In specific reference to insulin, the threatened premium increase is counterfactual. Even if true, it would constitute a de facto endorsement of price discrimination.)

Before moving on to our specific questions, it may be helpful to summarize how drug channel actors—PBMs, manufacturers and last but not least insurers—facilitate the eventual patient injury. We understand this injury as follows:

  • Insured individuals are injured because insurers—with the tacit or contractual complicity of manufacturers, PBMs, and other system actors including government agencies—conceal from them the very low net prices that result from negotiated price concessions (volume discounts, conditional rebates, fees, outcome-based price concessions, etc.). This deception allows insurers to base “cost-sharing” on a price that far exceeds the drug’s actual net cost to plan. This system of dual pricing (high public list price, low secret net price), relying on reimbursement contracts between insurers and manufacturers, prevents Americans from making informed consumer decisions regarding health insurance: individual consumers do not know the actual cost/price to plan of the healthcare goods and services they are consuming. To add insult to injury, this system further allows health plans to stigmatize and shame their insured plan members with chronic conditions for the alleged cost of their treatment (articulated on the basis of list price, not net cost to plan). Insured individuals with diabetes are shamed and blamed by insurers and health plan managers for others’ premium increases.
  • Uninsured individuals are injured because they are forced to buy their drugs from pharmacies at an inflated price no corporate actor pays (insurers negotiate much lower net prices). Pharmacies acquire insulin and other rebated specialty drugs from manufacturers, via distributors (i.e. wholesalers under a fixed fee distribution contract with manufacturers). This system allows manufacturers to control the price of the rebated drugs at the point of sale—they know exactly how much price concession they can pass back to insurers without undermining their net price target—and thus their gross revenues. Each time a competitor increases its list price and offers a larger rebate (to gain access to preferred placement on insurer formularies), a manufacturer increases its own drug list price in order to match or beat the competing rebate offer. This competition on rebating is the perverse incentive that Credit Suisse and other insider experts often refer to—it incentivizes insurers to choose more expensive drugs with higher rebates, as those heavily rebated drugs can be used to generate increased “cost sharing” payments that now, for insulin, far exceed insurers’ net cost. Uninsured Americans are, meanwhile, exposed to skyrocketing unrebated prices, fueled by the demands from insurers and PBMs—whose fees depend on rebate size—for ever-increasing rebates. The dual-pricing system also delivers to manufacturers unconscionable profits: for analog insulin, unrebated list prices (pharmacies’ “usual and customary” or cash price) are three to four times larger than the net price manufacturers obtain after delivering rebates and other price concessions to PBMs and insurers. Uninsured people who qualify for a manufacturer’s patient assistance program or PAP are asked to pay a price that is more than twice the net price offered to commercial payers, again delivering to the manufacturers unconscionable profits (which manufacturers represent to patients and the public as a generous concession).

We hope when submitting follow-up questions to Mr. Azar you will consider posing one or more of the following:

  • Question 1: Responding to a question from Sen. Young regarding HSA/HDHP and patient cost-sharing, you referred to law preventing an insurer from covering “costs” until the person with the HSA/HDHP has met their deductible (exception for preventive care). Specifically in reference to two definitions of US drug prices—(1) public list price (a stated manufacturer list price or acquisition cost for a pharmacy or cash price for an uninsured) and (2) secret net price (either net price received by manufacturer after subtracting all price concessions and rebates, or net cost to plan after PBMs/insurers receive rebates, fees and other price concessions from manufacturers)—would you please clarify whether the term “costs” as you used it in your response to Sen. Young refers to list or net price? Alternatively, if you refer to another pricing concept, would you please define that concept?
  • Question 2: You stated during Wednesday’s hearing that insulin prices are “too high”—and that these high prices work for “stakeholders behind the scenes.” More specifically, you said in comments at the Manhattan Institute in Fall 2016 that in some cases “patients pay more than their insurers do for medicine.” Would you please explain, in terms ordinary Americans can understand, how this happens and what can be done to make sure cost sharing amounts are based on the true net cost to plan, i.e. the low—but secret—net price third party payers are actually paying for the drug?
  • Question 3: Based on your understanding of the laws and regulations governing insurance, should cost sharing be based on the acquisition cost of the drug by the pharmacy or on the net cost to plan for private insurers?
  • Question 4: It may be the case that insurers were/are basing cost sharing on the unrebated acquisition cost of drugs instead of net cost to plan (the acquisition cost minus any rebate and price concession received from manufacturers and via PBMs). This practice that could foreseeably result in drug rationing and thus physical harm to individuals. If evidence mounts that insurers have been basing cost sharing on a price other than net cost to plan, would you fully support a DOJ investigation into this practice, even if such an investigation were also to target manufacturers, including your former colleagues at Eli Lilly? 
  • Question 5: Manufacturers have been marketing Patient Assistance Programs as a panacea that would cure the injury the current pricing system imposes on uninsured individuals. But Lilly’s own documents suggest that these programs only discount insulin by 40% off a skyrocketing list price, while insulin sold to commercial insurers is now reported to be discounted by up to 75%. A review of European prices, U.S. historical prices, and insulin cost of production would suggest that, despite very large rebates, the net prices paid by U.S. insurers are themselves supra-competitive. The price thus offered to low-income uninsured individuals via these PAP programs might thus be beyond supra-competitive level. Based on your experience and extensive industry knowledge, would you agree that insulin manufacturers derive unconscionable profits from these “patient assistance” programs? 
  • Question 6: Some brands of fast-acting analog insulin sold in the US are sold in Europe, Australia and Canada at a fraction of their public U.S. list prices. These prices, in single payer markets, are in fact roughly equivalent to (though still slightly lower than) than the net price U.S. commercial payers actually pay manufacturers. Based on your extensive industry knowledge, would you agree that analog insulin could thus be profitably sold in the US for less than $50 per 10 ml vial? 
  • Question 7: Similarly, glucagon emergency kits are sold overseas at prices ranging on average from about $25 to $40. Based on your extensive industry knowledge, would you also agree that glucagon emergency kits could be profitably sold in the U.S. for less than $55.02 — an average “insurer price” documented in a 2015 article authored by Eli Lilly employees?
  • Question 8: You’ve alluded in past talks to value-based pricing as an option for transforming the system. Your opening statement indicates that you plan to use Medicare as a Trojan horse for imposing outcome-based rebating on the healthcare industry, and supporting data-sharing that puts the individual patient “at the center of decision making.” 
    • How would a value-based pricing system—where either independent third-party or in-house insurance experts decide the value of drugs based on esoteric factors—bring the prices paid by uninsured individuals (for life-saving drugs that are relatively cheap to manufacture) down to the general price range paid by commercial insurers in the U.S. and individuals in European single payer markets?
    • Do you agree with the Laura and John Arnold Foundation–funded Institute for Clinical and Economic Review (ICER), when they state in a March 2016 report titled “Insulin Degludec (Tresiba®, Novo Nordisk A/S) for the Treatment of Diabetes: Effectiveness, Value, and Value-Based Price Benchmarks”—that “achieving levels of value more closely aligned with patient benefit would require relatively modest discounts (8-10%) from the current list price” of Novo Nordisk’s insulin degludec Tresiba? The current average cash price of Tresiba is about $539 for a box of five 3ml flextouch pens (U-100) that may cost less than $10 to manufacture. 
    • Individuals with type 1 diabetes need insulin to stay alive. Pricing their insulin using value-based pricing methodology, i.e. estimating in a supposedly scientific manner “levels of value more closely aligned with patient benefit,” would be akin to pricing their lives. As a proponent of value pricing, what value would you place on a year of life for a person with type 1 diabetes?

Our prior statement (https://www.t1df.org/news/2017/11/15/t1df-statement-on-the-nomination-of-alex-azar) describes a number of Mr. Azar’s actions and public positions that have hurt the most vulnerable people with insulin dependent diabetes, especially the uninsured, those on high-deductible or high coinsurance plans, and Medicare Part D beneficiaries.