Speaking before a health care symposium at the conservative Manhattan Institute last November, Alex Azar, then the president of the pharmaceutical giant Eli Lilly and Co., addressed the elephant in the room. He explained that pharmaceutical companies raise drug prices to accommodate large rebates paid to third-party middlemen and insurance companies, creating a system of kickbacks that pads profit margins while sending prescription drug prices through the roof.
Advocates warn that Alex Azar engaged in the very reimbursement schemes he criticizes before leaving Eli Lilly earlier this year.
"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," Azar said, adding that some patients may go without medicine rather than pay high out-of-pocket costs to fill a prescription.
Within months of Azar's speech, Eli Lilly and other big drug companies were hit with a barrage of lawsuits and government investigations questioning the rising price of insulin and other diabetes medications and accusing major manufacturers of price fixing. As Truthout has reported, Eli Lilly raised the price of Humalog, a fast-acting form of insulin, by 345 percent during Azar's eight-year tenure at the company.
However, it was Azar's comments on rising drug prices and the plight of consumers that helped him become President Trump's latest nominee for health secretary. Azar served as deputy health secretary under the Bush administration, and the White House says his experience in both the public and private sectors makes him the perfect candidate for reining in drug prices at the Department of Health and Human Services (HHS).
Advocates say Azar's ideas for lowering drug costs could make an already confusing system even more opaque. They also warn that he engaged in the very reimbursement schemes he criticizes before leaving Eli Lilly earlier this year.
"When transparency is the solution, you don't put the problem in the hands of someone who has a lot to hide," said Charles Fournier, the vice president and legal director of the Type 1 Diabetes Defense Foundation (T1DF), in an email to Truthout.
Drug manufacturers no longer compete for the lowest drug prices, but rather for the highest rebates.
Fournier and his organization have named Eli Lilly in two separate lawsuits alleging that drug manufacturers, third-party pharmacy benefit managers and some insurance companies have conspired to create a drug-pricing system for insulin and other products that is concealed from consumers and unlawfully hurts people with diabetes. They say the pricing schemes particularly impact those who are uninsured or have insurance plans with high deductibles and copays.
Here's how it works: Pharmacy benefit managers such as Express Scripts and OptumRx manage prescription drug benefits for insurance companies, putting them in a unique profit-making position. These firms make backroom agreements with manufacturers like Eli Lilly to place drugs in health insurance plans in exchange for large rebates on the listed price of a drug. This gives the drug companies access to millions of customers in exchange for reimbursement payments, or "kickbacks."
This "dual pricing" scheme creates two prices for drugs like insulin -- the original listed price of the drug, and the price that benefit managers and insurance companies pay after receiving hefty rebates. Drug manufacturers no longer compete for the lowest drug prices, but rather for the highest rebates. Over the years, insurance companies have demanded larger cuts of these rebates to reduce premiums or simply maximize profits, putting upward pressure on drug companies to annually raise the list price of big sellers like insulin in order to protect profits.
Azar continued the reimbursement schemes at Eli Lilly in order to maintain the company's domination of diabetes drug markets.
This explains why the price of insulin and products like blood sugar test strips used on a daily basis by people living with diabetes keep going up, even though these products have been around for decades. People with good insurance coverage may be shielded from high costs, but because insurance companies often frame benefits around the list price of a drug rather than the actual price paid after rebates, people with high out-of-pocket costs may end up paying even more for medicine than insurance companies do.
Azar says he wants to bring more transparency to the system and has cultivated the public image of an advocate for sensible, market-based reforms that would empower consumers to make better decisions. He promotes an idea called "value pricing" that would make more patient data available to insurance companies to help determine the real "value" a drug provides, and then shape prices accordingly.
Real reforms would include tough regulations requiring insurance companies to report the actual, after-rebate prices they pay for drugs to their customers and then base patient cost-sharing benefits on those prices rather than inflated market listings.
However, advocates say Azar continued these reimbursement schemes at Eli Lilly in order to maintain the company's domination of diabetes drug markets, all while costs to vulnerable patients soared out of reach. A 2016 survey by the diabetes advocates at T1 International found that the average patient in the US spends $571 a month to treat their diabetes.
Diabetes activists also argue that "value pricing" may stem future cost increases but will do nothing to bring down costs. Instead, "value pricing" will lock in current costs that are already too high for many patients. Fournier said real reforms would include tough regulations requiring insurance companies to report the actual, after-rebate prices they pay for drugs to their customers and then base patient cost-sharing benefits on those prices rather than inflated market listings.
"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,'" said Julia Boss, the president of T1DF and a plaintiff in the group's lawsuits. "We urge lawmakers instead to ask specific questions about Mr. Azar's participation, at Lilly, in reimbursement contracts -- based on his 2016 statements that patients are paying more than their insurers do and suffer physical harm as a result."
Fournier said Azar has "personal knowledge" of the pricing schemes named in the group's lawsuit as collusive and anticompetitive, and industry executives who have condoned the practices "might even be alleged to have personal liability in a collusive scheme that directly and foreseeably resulted in physical harm and death."
During his time at Eli Lilly, Azar oversaw a 100 percent increase in the price of its glucagon kits.
"If market actors collude to price average earners out of the housing market, people rent," Fournier said. "If market actors collude to price average earners out of insulin and emergency rescue glucagon, people die."
A former industry executive like Azar, who could be implicated by a past employer or third-party in "manslaughter," is "obviously" susceptible to pressure from the industry, Fournier said.
"Self-interest would, in itself, drive Mr. Azar to keep past actions secret and follow the regulatory direction most likely to justify, retroactively, the dysfunctions the head of HHS would be tasked to rectify," Fournier said.
Lawmakers routinely echo consumer rage over rising drug prices, although they have done little about the issue. The high cost of pharmaceuticals is expected to be a central theme of a Senate Health, Education, Labor and Pensions Committee hearing on Wednesday in which Azar will be questioned about his nomination. Sen. Bernie Sanders, Democratic Sen. Tammy Baldwin and other lawmakers who have raised alarms about skyrocketing drug prices sit on that committee.
T1DF points out that high prices on lifesaving glucagon kits, which are used in emergencies to rescue people with diabetes suffering from dangerously low blood sugar levels, have deterred ranking member Sen. Patty Murray's home state of Washington from putting the kits in ambulances across the state. This raises serious concerns for young children with Type 1 diabetes who attend schools that depend on EMS services to administer glucagon.
During his time at Eli Lilly, Azar oversaw a 100 percent increase in the price of its glucagon kits due to reimbursement schemes and other allegedly anticompetitive practices, according to T1DF.
Democrats are expected to ask Azar about high drug prices and his background in the industry in light of statements made by Trump, who has publicly slammed drug companies for raising prescription costs but has taken little action on the issue, according to a Senate Democratic aide to the committee. Democrats are also concerned about the Trump administration's attacks on reproductive rights and efforts to undermine the Affordable Care Act at HHS.