P.O.

Box 10841
Eugene, Oregon 97440
p/f: 541.257.8878
info@t1df.org
November 29, 2017
www.t1df.org

The Honorable Maggie Hassan by email, fax

United States Senate
330 Hart Senate Office Building
Washington, D.C. 20510

RE: Senator Hassans statement on insurance cost-sharing during the 11/29/17 H.E.L.P. committee
hearing on the nomination of Alex Azar to serve as Secretary of Health and Human Services

Dear Senator Hassan:

During the second round of questions, toward the end of Wednesdays hearing, you stated:

Youve also blamed insurance plan design for high drug prices but its really the list
price set by manufacturers that is driving the increase of what consumers are paying
because requiring lower cost sharing for drugs would just lead to increased
premiums, again all at the expense of consumers.

There is growing awareness that insurance plan cost-sharing is a misnomerthat some patients with
chronic medical conditions are in fact paying more than their insurers do for drugs. Your statement
overlooks this reality, which has long been known to industry insiders. It thus de facto endorses the
practice of discriminatory pricing against people with diabetes and other chronic conditions.
Discriminatory pricing practices are effectively forcing people who use heavily rebated brand name
drugs to make additional, hidden premium payments (similar to hotel drip pricing, except here the
add-on payments remain hidden from consumers). For people with type 1 diabetes, using heavily
rebated brand name insulin, and thus paying whatever cost sharing insurers demand, is the only way
they can stay alive. To paraphrase Senator Kaines comment during the hearing: insured individuals are
also being held hostage by their own insurers.

High list prices, set by manufacturers, harm both insured and uninsured individuals. But, as accurately
stated by Mr. Azar, inflated cost sharing amounts, set by insurers, also cause harm. On behalf of your
constituents with type 1 and other insulin dependent diabetes, we ask you to reconsider your position
on this matter and to publicly oppose insurance discrimination, in any form, against people with
diabetes.

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When Mr. Azar has publicly stated, as he did at the Manhattan Institute on November 3, 2016, 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, you should be asking him how this is possible.
Repeating, instead, the misleading and discriminatory position of the insurance lobby (lower drug cost-
sharing automatically causes higher premiums) works against your constituents with diabetes and
other chronic medical conditions.

We draw your attention to this specific issue because CMSs proposed rule that rebates must be
passed through to seniors under Medicare Part Dand, to a lesser extent, T1DFs pricing lawsuitsare
likely to bring reimbursement contracting under higher public scrutiny. Drug channel actors and others
who wish to preserve anti-competitive opaque contractsso that they can continue to profit from the
difference between a high public list price and a secret net pricewill use statements like yours to
channel public support. Already, The Washington Posts Carolyn Johnson has advanced the argument
that cost sharing based on net cost (which T1DF believes is already legally required) would cause an
increase in premiums. In her November 24 piece, The Trump administration is taking on drug prices
but not drug companies, Ms. Johnson dismissed the idea of passing rebates through to Medicare Part
D beneficiaries as radical and raised the specter of higher premiums as an argument against cost-
sharing based on rebated (net) cost to plan. She, like you, failed to acknowledge that under the current
system some insured are paying more than their insurers do for drugs. This argument, in a nutshell: we
must continue robbing Peter, or Pauls premiums will go up.

Mr. Azar has flaws as a potential head of HHS, a number of which we outlined in the letter we sent you
on November 19, 2017. He is, however, an experienced industry insider who knows exactly how the
U.S. dual pricing reimbursement system works for the benefit of corporate actors. The pricing system
he described on November 3, 2016, is in fact quite accurate. Manufacturers, PBMs and also insurers
profit from high list prices. But they do not all profit in the same way:

PBMs are now entering into pass-through contracts with insurers (who may separately or
additionally receive rebates directly from manufacturers). These PBM pass-through contracts
index the PBMs fee on the size of the rebates they negotiate for, and pass through to, the insurer.
The larger the rebate, the larger the PBMs fee.

Manufacturers derive benefits in the domestic as well as international markets. First, a

manufacturer competes to give PBMs the largest possible rebate and thus to secure better
placement on the insurer's or PBM's formulary (thereby increasing its sales). Second, because
PBMs and insurers derive profits from the rebates, the reimbursement contracting system
decreases pressure to compete on net price, thus allowing manufacturers to negotiate supra-

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 competitive net prices, roughly twice what they can obtain in European single-payer markets.
Manufacturers thus derive profit from an artificially high net price. Third, manufacturers derive
unconscionable profits from the drugs sold directly to uninsured individuals, either via
pharmacies or so-called Patient Assistance Programs (PAP). Finally, manufacturers use these
reimbursement contracts (high public list price, low secret net price) to prevent price arbitrage
and prevent competition on net price within a given marketplace as well as between
marketplaces and, as increasingly in Europe, between single-payer markets.

For insurers, leading the public to believe that they actually pay skyrocketing list prices allows
them to blame people with chronic medical conditions, especially diabetes, for above-inflation
premium increases. Insurers may use inflated list prices, instead of the much lower net prices they
actually pay, to report plan costs, thus allowing them to take a larger profit than otherwise
allowable. Under the dual pricing system, insurers classify rebates paid by manufacturers for
drugs dispensed under ACA plans as general revenues while keeping the unrebated list prices of
the drug as a cost to plan. Accounting manipulation may thus enable insurers to overstate their
members cost-sharing liabilities and to inflate the subsidies they receive. Finally, payers inflate
cost sharing payments by using list prices as cost to plan instead of the much lower net cost.
They also deceive consumers into believing that insurers shoulder a much larger share of the
cost that they actually do. A $50 copay for a drug when the insurer reports its cost to plan as list
price of $300 sounds like a deal; a $50 copay for a drug if the insurer accurately reported actual
cost to plan as net price $60 would obviously be less impressive. (And, as Sen. Collins pointed
out during the hearing, in some cases insurers are exacting co-pays that are higher than the
drugs cash price without insurance.)

The fact that insurers/payers also take advantage of high list price does not excuse the enabling role of
the manufacturers and PBMs. But insurers could, and in our opinion already should, base cost sharing
on this much lower net cost to plan and disclose to plan members accurate net cost information.
Instead, insurers base patient cost-sharing on a full list price insurers do not pay, and keep the net price
they actually pay secret.

Your comment on Wednesday encourages your constituents and the American people to tolerate the
existing exploitation of patients with chronic conditions by repeating the unsubstantiated insurer
position that delivering net drug pricing to consumers would increase premiums. On the contrary, it is
common knowledge, especially in regard to diabetes, that low drug prices foster therapeutic
adherence to drug treatment, resulting in improved medical outcomes and decreased overall costs.
Meanwhile, the system you defended on Wednesday results in inflated cost-sharing amounts that

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decrease therapeutic adherence and thus increase medical complications, causing higher costs to
insurance plans and ultimately to taxpayers.

Where is your indictment of insurers exploitation of Americans with chronic medical conditions such
as diabetes? Missing from your comments on Wednesday was an acknowledgment of the harmful
effect of the current overcharging on the financial but also medical welfare of your constituents with
chronic medical conditions. Insurers have been misleadingly messaging to the public that premium
increases are caused by the skyrocketing list prices of diabetes drugswhile in fact these commercial
insurers pay only a fraction of the list price, sometimes as low as 25% in the case of analog insulin. That
this overcharging may, as T1DFs lawsuits allege, be fraudulent, makes the oversight even more
troubling. There is no evidence that rebates received by manufacturers, and accounted as general
revenues, are actually used by insurers to lower premiums instead of increasing profits. In fact,
enforcing cost transparency, and thus accountabilityacross the entire channel, from manufacturers to
insurerswould likely reduce costs across all plans. Your unqualified statement that reduced cost-
sharing would drive up premiums condones payers current discriminatory practices. These payers
turn your constituents with diabetes into scapegoats.

T1DF hopes that you will reconsider your position on this subject. It is your responsibility to tell payers
that discrimination, shaming and scapegoating must stop. You must protect your constituents who are
now being directly exploiteda group that includes lower-income people on ACA plans with high
deductibles; small business owners; and workers on employer-provided plans, which are also
increasingly designed to force overpayments from consumers who use heavily rebated brand name
prescription drugs. In the future, we would hope to see you publicly recognize that cost-sharing is, in
many cases, a euphemism for direct overcharging. At a minimum, we hope you will refrain from scare
tactics designed to discourage public support for reduced cost-sharing in insurance plan design.

Thank you for taking the time to consider these concerns.

Sincerely,

Julia Boss
President

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