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March 8, 2018

In blistering remarks, FDA commissioner blames 'rigged payment scheme' for 'exorbitant' biologic drug prices

Daily Briefing

    FDA Commissioner Scott Gottlieb on Wednesday criticized what he called a "rigged payment scheme" that keeps lower-cost versions of biologic drugs off the U.S. market and leaves patients paying "exorbitant out-of-pocket costs."

    Gottlieb lambasts so-called 'rigged payment scheme'

    During a speech at a conference for health insurance companies, Gottlieb argued that complex and opaque deals between drug distributors, pharmacies, insurers, and other industry players have blocked lower-cost drugs, particularly biosimilars, from the market.

    "The rigged payment scheme might quite literally scare competition out of the market altogether," Gottlieb said. "I fear that's already happening."

    FDA since 2015 has approved nine biosimilars, which have been championed as less costly alternatives to expensive biologic drugs. However, Gottlieb said just three of those drugs are available in the United States because existing payment practices involve drug rebates and discounts that encourage insurers to favor the original, more costly biologic drugs.

    Gottlieb explained, "Here's the rub. When biosimilars launch, their initial discount is typically on the order of 15% or 20%. And unless the plan can switch all their patients over to the biosimilar, the cost of the lost rebates on the patients who remain on the original biologic won't be offset by value of the discount on the biosimilar, and the smaller number of patients who are started on it."

    He continued, "Biologic sponsors don't have to do much more than hold these rebates hostage—or even simply lower the (wholesale acquisition cost) price of the reference product to meet that of the biosimilar entrant—to make the economics of market entry highly unattractive."

    Gottlieb calls out PBMs

    Gottlieb in his speech called out the role pharmacy benefit managers (PBMs) play in negotiating lower drug prices with manufacturers on behalf of insurers, charging that those savings often are not passed on to consumers, who end up facing "exorbitant out-of-pocket costs."

    He said, "Too often, we see situations where consolidated firms—the PBMs, the distributors, and the drug stores—team up with payers," Gottlieb said. "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."

    Gottlieb's call to action

    Gottlieb said, "Pay[e]rs are going to have to decide what they want: The short-term profit goose that comes with the rebates, or in the long run, a system that functions better for patients, providers, and those who pay for care."

    Gottlieb called on insurers to "lead the way in formulary design by making biosimilars the default option for newly diagnosed patients." For instance, he suggested insurers could better share savings with patient by waiving co-insurance payments or by making it easier for patients and providers to use biosimilars, such as by lifting prior authorization requirements or giving the drugs preference over the original biologic drugs in their formularies.

    Industry reaction

    According to Bloomberg, America's Health Insurance Plans, which sponsored the conference where Gottlieb spoke, argued that biosimilars struggle to enter the market because drugmakers setting high prices on biologics and raise them to ward off competition. Kristine Grow, a spokesperson for AHIP, said, "Because of such pricing practices, the overall health care system as well as the consumers who need these important therapies won't reap the much-needed savings from biosimilars."

    The Pharmaceutical Care Management Association, which represents pharmacy-benefit managers, argued that payers simply seek lower costs through rebates "in a marketplace where they have no control over the prices drugmakers set, how quickly FDA approves biosimilars, or when FDA will finalize workable interchangeability guidelines to increase uptake of biosimiliars" (Edney, Bloomberg, 3/7; Hellman, The Hill, 3/7; Abutaleb, Reuters, 3/7; Swetlitz, STAT News, 3/7; Brennan, RAPS, 3/7).

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