Celgene $CELG wasn’t singled out by name in a speech by HHS Secretary Alex Azar Monday, but the big biotech got cast in the role of main villain in his outline of what ails Medicare — and how that should be fixed.
The price on Celgene’s widely used Revlimid — Evercore ISI’s Umer Raffat made the connection to Azar’s speech in a note Monday afternoon — was jacked by 20% over the last year, which means that Medicare patients pay an extra $115 month, moving from $575 to $690 per month, for their share of a drug that had cost $11,500 a month in 2015.
Because it’s a cancer drug, Azar adds, its one of six protected classes of therapies that Medicare is required to cover. And as a result, the federal government is paying an average 6% discount on these drugs, while private payers are able to gain discounts of 20% to 30%.
“A 6 percent discount — I’m sorry, that is not negotiating,” said the HHS Secretary.
Azar went to some length on Monday to expand on the drug price plan that he and President Donald Trump presented on Friday — amid considerable relief by Big Pharma players and their investors who quickly shrugged it off as largely a non-event.
In the speech today, Azar attacked two of the big weapons that have been suggested for reining in prices, but also said they would likely remain on the table unless the industry played ball in negotiating better terms for drugs like Revlimid. And he broached the issue of merging Part B drugs into Part D, so they could use better negotiating powers to bring down their cost.
Direct Medicare negotiations, leveraging the buying power of the federal program, wouldn’t actually lead to significant savings, Azar pointed out, citing a CBO report. What would, he added by implication, is a formulary approach adopted by private payers, threatening to drop drugs or provide exclusive positions in exchange for discounts. The single payers’ solution in setting prices, he added, was a non-starter.
Nevertheless, he held those measures out as a threat the industry has to deal with now by offering better prices on drugs used by the federal program. From his prepared remarks:
We don’t believe either of these proposals would put American patients first. They would move us toward the kind of socialized medicine systems that have such a notorious reputation for poor quality and access. This stacks right up there with the false promises of Obamacare: that if you like your plan, you can keep it, and if you like your doctor, you can keep seeing him.
But I don’t expect these ideas to go away, no matter how unlikely they are to work. If the pharmaceutical industry wants this idea off the table entirely, the only way is to come to the table with us, to engage in meaningful negotiation with Medicare Part D plans, and to stop the price hikes.
Forget about reimportation, said Azar.
Canada simply doesn’t have enough drugs to sell them to us for less money, and drug companies won’t sell Canada or Europe more just to have them imported here.
And unsafe drugs from unreliable manufacturers could be used to plug the gap.
Azar’s list of proposals, which will likely be the subject of considerable lobbying with Congress, includes overturning the cap lawmakers put in place on penalties for raising drug prices beyond the rate of inflation — a common industry practice for years. And he wants to incorporate private discounts into the average manufacturer price — or AMP — used to set Medicaid prices.
HHS also plans to use shaming tactics against any drug makers that refuse to make samples available for generic manufacturers to use for their development work, calling them out on any abuses they find. In a sense, Azar — a former top exec at Eli Lilly — is muscling the entire industry to back off some favorite talking points he once used himself and get real with their pricing strategies.
For too long, there’s been a lot of talk on drug prices and no action. Drug companies have insisted we can have new cures or affordable prices, but not both.
I’ve been a drug company executive—I know the tired talking points: the idea that if one penny disappears from pharma profit margins, American innovation will grind to a halt.
I’m not interested in hearing those talking points anymore, and neither is the President.
After the pharma rally on Friday afternoon, the Trump administration still seems set on illustrating its get-tough approach to reining in drug prices in the US, which far outstrip the prices allowed in any other industrialized nation. Given the latest fluctuations on the market, though, Trump and Azar have a considerable distance to go.
Celgene’s stock is up 1% today.
Image: HHS Secretary Alex Azar at the May 11 speech. WHITE HOUSE via YOUTUBE
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