Kaiser Permanente CEO: Can't rationalize drug costs

Kaiser Permanente CEO Bernard Tyson said on Friday he does not believe a free market for prescription drugs truly exists in the United States.

"I cannot rationalize how much we're paying for drugs," Tyson told CNBC's "Squawk Box" at the World Economic Forum in Davos, Switzerland.

Tyson said his view is the government has its hands tied on whether or not it can negotiate prices for Medicare.

Medicare is prohibited from negotiating with drugmakers to secure lower prescription prices. That stipulation is built into the government's program to subsidize drug costs for Medicare beneficiaries.

"When the prices are established with the government, it therefore becomes the ceiling, if you will, and so I can't go in and negotiate a lower price because then they'll have to give that price to the government and everyone else," he said.

Tyson said he does not want to come across as angry with the pharmaceutical industry, but said he has a problem with drug prices.

He acknowledged it was important to foster innovation, noting that hepatitis C can now be cured rather than managed. "That's a big deal," he said.

To be sure, Gilead came under criticism after it set the price for its breakthrough hepatitis C drug Solvadi at $1,000 a day in 2014.

"We have to figure out how we bring it all together, because at the center of my agenda is affordability, and that's really all I'm after while we continue to improve quality and service," Tyson said.

Part of reining in costs entails rethinking healthy care, he said. Last month, Kaiser Permanente announced it would open a medical school in Southern California with a focus on integrated, collaborative care.

The school will promote an environment in which the doctor is not the "be all and end all" of the hospital, but plays a critical role in leading, organizing and orchestrating care, in part by taking advantage of technology, Tyson said.

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