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Gottlieb Rips 'Rigged Payment Scheme' During AHIP Speech

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.

Steven Porter is editor at HealthLeaders.


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