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Gottlieb Rips 'Rigged Payment Scheme' During AHIP Speech

News  |  By Steven Porter  
   March 07, 2018

The FDA commissioner delivered strong words to a room full of health plan representatives about the impact of their rebating and contracting practices on patients.

Scott Gottlieb, MD, who has been commissioner of the U.S. Food and Drug Administration about 10 months, delivered a speech Wednesday morning during a national health policy conference hosted by America’s Health Insurance Plans (AHIP).

Gottlieb’s remarks included some strong words that were sure to challenge his audience to ponder how the current drug market’s structure impacts competition and consumers, especially as it pertains to the burgeoning of biologics.

Marketplace senior healthcare reporter Dan Gorenstein paraphrased the speech in a tweet: “#gauntletthrown.”

Here are some of Gottlieb’s key points, according to his remarks as prepared for delivery:

1. Drug pricing is overly complex and opaque.

Gottlieb denounced the drug industry’s rebating and contracting practices as too complex and opaque, referring to them as “Kabuki drug-pricing constructs” that hide profit-taking at various points in the supply chain, drive out-of-pocket spending among consumers, and hamper competition.

“Current rebating and contracting practices—combined with the increased consolidation that we’re seeing in many segments of the drug supply chain—has produced some misaligned incentives,” Gottlieb said, noting that three pharmacy benefit managers (PBMs) control more than two-thirds of their market, three wholesalers control more than 80% of theirs, and five pharmacies control more than half of theirs.

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“Too often, we see situations where consolidated firms—the PBMs, the distributors, and the drug stores—team up with payors. They use their individual market power to effectively split some of the monopoly rents with large manufacturers and other intermediaries rather than passing on the saving garnered from competition to patients and employers.”

Because these arrangements are difficult to understand and not terribly transparent, their “rebating and contracting schemes" are "all that more pernicious,” Gottlieb said.

2. The market structures are penalizing patients inappropriately.

A patient should not be penalized because he or she needs a particular drug that isn’t available on formulary, and yet that’s often what happens, Gottlieb said.

“Patients shouldn’t face exorbitant out of pocket costs, and pay money where the primary purpose is to help subsidize rebates paid to a long list of supply chain intermediaries, or is used to buy down the premium costs for everyone else,” he said.

“After all, what’s the point of a big co-pay on a costly cancer drug? Is a patient really in a position to make an economically-based decision? Is the co-pay going to discourage overutilization? Is someone in this situation [voluntarily] seeking chemo?”

Gottlieb said high-dollar copays and rebates have been used by insurers to offset their payments for costly drugs, enabling them to lower premium costs—which means, in essence, that sick people are subsidizing the healthy.

“Now I understand that there’s a perverse incentive to use that rebated money to lower premium costs, since most health plans compete on the sticker cost of their premiums,” he added. “But we’re living in a world where financial toxicity is a real concern for patients. And every member of the drug supply chain needs to take responsibility for addressing it.”

3. Let biologics mimic our success with generics.

Gottlieb pointed to generics as one success story in which PBMs have used cost-saving contracting practices.

“The buying power of large PBMs and formulary design is one reason that 81% of all small molecules drugs are available in generic formulations, and prices can fall by up to 80-90% after FDA approves multiple generic competitors,” he said.

In 1980, only 13% of the prescription drugs dispensed in the U.S. were generics; although that number has risen to nearly 90%, generics still comprise only 26% of prescription drug costs, Gottlieb said, touting the FDA’s record number of generic drug approvals last year.

Despite this success, Gottlieb said some of his “most significant concerns about the long-term impact of the pricing and rebating mischief” pertain to another area: biosimilars.

“We must do more to ensure that the current pipeline of biosimilar products reaches patients as safely and efficiently as possible, and that the full potential of biosimilar products to improve patient health is realized once products meet the FDA’s high standards for approval,” Gottlieb said.

“This is why we’ve challenged ourselves across the agency to consider what additional steps FDA can take to encourage biosimilar competition.”

My remarks at #AHIP today highlight substantial public health benefit of a competitive market for biosimilars; strong market incentives are critical to future biosimilar development in same way incentives are key for development of innovator drugs — Scott Gottlieb, M.D. (@SGottliebFDA) March 7, 2018

The FDA has approved nine biosimilars, five of them last year. But only three are being marketed currently.

“Delays may be attributed, in part, to ongoing litigation,” Gottlieb said.

“The rigged payment scheme might quite literally scare competition out of the market altogether,” he added. “I fear that’s already happening.”

Steven Porter is an associate content manager and Strategy editor for HealthLeaders, a Simplify Compliance brand.

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