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Drug payment system 'rigged,' FDA commissioner charges

| Wednesday, March 7, 2018, 11:55 p.m.
Food and Drug Administration Commissioner Scott Gottlieb listens during an interview with The Associated Press in New York on Monday, March 5, 2018. Gottlieb said Monday that he needs more staffers to intercept opioids that are being disguised as other drugs and supplements. (AP Photo/Kathy Young)
Food and Drug Administration Commissioner Scott Gottlieb listens during an interview with The Associated Press in New York on Monday, March 5, 2018. Gottlieb said Monday that he needs more staffers to intercept opioids that are being disguised as other drugs and supplements. (AP Photo/Kathy Young)

A “rigged payment scheme” among drug plans, insurers and pharmaceutical companies blocks access to cheaper versions of some of the most costly drugs in the United States, the head of the Food and Drug Administration said Wednesday.

FDA Commissioner Scott Gottlieb aimed particular criticism at giant pharmacy benefit managers that contract with health plans to administer coverage of drugs, saying the industry's contracting tactics have stymied cheaper copies of expensive biotechnology drugs. Known as PBMs, the companies include Express Scripts Holding, CVS Health and UnitedHealth Group's OptumRx unit.

“Consolidated firms — the PBMs, the distributors, and the drug stores — team up with payors,” Gottlieb said in prepared remarks at a major conference of health insurers in Washington. “They use their individual market power to effectively split monopoly rents with large manufacturers and other intermediaries rather than passing on the saving garnered from competition to patients and employers.”

The speech is some of the Trump administration's broadest criticism yet of the health care industry. While the FDA has little or no power over PBMs, Gottlieb's remarks make clear that administration health officials place the blame for high drug costs not just on biotechnology and pharmaceutical companies but also on other parts of the complex medical supply chain.

Gottlieb said the arrangements between PBMs, drugmakers, insurers and distributors threaten the new market for what are known as bio­similars, cheaper versions of complex biotechnology drugs. Unlike pills, biotechnology drugs are made from living cells and have advanced the treatment of many diseases. They've also come with record prices.

Biosimilars were meant to be a less costly alternative to the products, and Gottlieb called them necessary for a competitive market that works for patients. A 2010 law created a way for the FDA to approve the drugs and help doctors and patients decide how to use them. Their uptake has been stymied by what Gottlieb said were opaque contracts that favor the older, more costly drugs.

He described a system by which makers of the biotech drugs make exclusive arrangements with PBMs and insurers, who agree to cover only the old drug in return for rebates or discounts.

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

Drug plans have said rebates make their way back to patients in the form of lower monthly insurance premiums, and have called the opaque contracts a necessary trade secret. On Tuesday, United­Health said it would start passing a portion of them directly back to patients, which could lower out-of-pocket costs for people on particularly costly treatments. The move was praised by Health and Human Services Secretary Alex Azar.

The federal government has proposed a similar policy for drug plans that serve people in Medicare, which the PBM industry opposes and has said will raise premiums for everyone.

Few of the new, less-expensive biosimilars have gained a foothold. Of the nine biosimilars the FDA has approved since 2015, only three are available for sale. Often that gap is blamed on disagreements over patents on the original drugs.

But Gottlieb said the payment arrangements “raise another, perhaps even more insidious barrier to biosimilars taking root in the U.S., and gaining appropriate market share.”

Pfizer Inc., which sells Inflectra, a biosimilar of Johnson & Johnson's $6.3 billion arthritis drug Remicade, sued J&J last year for using exclusionary contracts to block its product.

As the Trump administration looks to tackle high drug prices, Gottlieb has taken the lead particularly by pushing for ways to speed low-cost generic drugs to market.

Those efforts haven't just focused on drugmakers. A White House report on drug pricing last month called out PBMs as well and steered clear of Trump's previous threat to have the government negotiate prices directly.

Unlike typical generics, which can be 80 percent cheaper than a brand-name drug, biosimilars require more research, an expense that typically makes them about 15 percent to 20 percent cheaper than the drug they're copying. This means the brand-name rebates continue to be attractive to PBMs and insurers who get some of the cut.

“Payors 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 said.

He urged PBMs and insurers to instead make biosimilars the default option for newly diagnosed patients and help the FDA educate doctors about the safety and value of the products.

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