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FDA chief tells pharma, payers: Stop the shell games with biosimilar competitors

U.S. Food and Drug Administration Commissioner Scott Gottlieb had a stern message for payers at one of their annual get-togethers: It is time to stop the drug pricing shell games, particularly with biosimilars — medicines intended to be lower-cost versions of biologic therapies.

It is not the first time Gottlieb has gotten tough with the private sector.

He told brand-name drugmakers in November 2017 it was time to "end the shenanigans" in trying to subvert the generics market.

Now, the drug innovators are plotting with payers, like insurers and pharmacy benefit managers, or PBMs, to blunt the market incentives for companies seeking to develop biosimilars — tactics that have kept those cheaper products out of the hands of patients, Gottlieb said at the annual policy conference of the America's Health Insurance Plans, or AHIP.

Biologics — large molecules derived from natural sources, such as micro-organisms or plant or animal cells — are used to treat serious illnesses, like cancer, rheumatoid arthritis and rare genetic conditions. They tend to be much more expensive than small-molecule medicines that often come in pill form, costing patients and payers tens, and sometimes hundreds, of thousands of dollars annually.

So millions of American patients stand to benefit from increased use of lower-cost, high-quality biosimilars, Gottlieb said.

"The public health benefits of a robust, competitive market for biosimilars are impossible for us to ignore," he told the conference attendees.

But he said innovators of biologics are colluding with insurers, distributors and PBMs to use payment mechanisms like rebates and contracts to discourage biosimilar competition.

Drugmakers pay rebates to payers in exchange for getting medicines on health plan formularies, or lists of covered treatments. The companies say the rebates are intended to lower plan premiums, but lawmakers and Trump administration officials have complained that consumers and the government are kept in the dark about the negotiations and the amounts paid and that patients are not benefiting directly from those savings at the pharmacy counter.

Gottlieb acknowledged that one insurer, UnitedHealth Group Inc., which runs its own PBM, OptumRx, said March 6 it would begin next year to pass along rebate savings to patients, which the company said would lower out-of-pocket costs for over 7 million of its fully covered plan holders.

The FDA commissioner urged other companies to take a similar "potentially disruptive step," which may "make the difference between patients affording their medicines and remaining adherent or stopping effective therapy to save on out-of-pocket costs."

But he said, for the most part, branded drugmakers and payers are engaging in "pricing and rebating mischief" that is hampering a competitive biologics market, essentially shutting out biosimilars.

Gottlieb took particular aim at consolidated companies — PBMs, distributors and drug stores — that team up with payers to 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."

Such consolidation and market concentration make the rebating and contracting tactics "all that more pernicious," the commissioner said.

The very complexity and opacity of those strategies, which he called "Kabuki drug-pricing constructs," help to conceal their "corrosion on our system and their impact on patients."

Such a "rigged" payment scheme might "quite literally scare competition out of the market altogether," Gottlieb said, adding that he feared that already was happening with biosimilars.

Once biosimilar makers see the system is rigged against them, "what's the incentive" for those companies to pour money into future investments to develop the lower cost alternatives, he asked.

Young market

The biosimilars market in the U.S. is relatively young, with the FDA only gaining the authority in 2010 under a provision in the Affordable Care Act to approve the products. The first biosimilar, Zarxio, from Novartis AG's Sandoz unit, was approved five years later in March 2015, entering the market six months later.

In the eight years that the law has been in place, the FDA has only approved nine biosimilars, with most of those now hung up in patent litigation or under settlement agreements that have kept them from entering the market.

"While we see a growing number of sponsors pursuing biosimilar development programs, the economics of development are currently unstable and the pipeline of biosimilar products that we hope for could be dramatically affected by the weakening of market incentives to bring these products to patients," Gottlieb said.

Pricing shell games

The biosimilars that have entered the U.S. market have come in at about 15% to 20% discounts to the prices branded companies put on their biologics.

But Gottlieb noted the rebate system is geared toward ensuring dominance by the branded biologics by giving PBMs a significant financial incentive to limit the uptake of biosimilars to continue the flow of large rebate payments.

"It's time to stop the shell games over drug pricing and start competing on delivering better health outcomes," he said.

The more biosimilar makers see that the current system is stacked against them, the fewer new entrants will cross into the space, Gottlieb said.

He urged payers to make biosimilars the default option for newly diagnosed patients and to share the savings with them maybe by waiving co-insurance.

Payers object, blame drugmakers

But the Pharmaceutical Care Management Association, or PCMA, which lobbies on behalf of PBMs, said it was "unfair to blame payers" when 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 biosimilars."

Payers, not the PBMs they hire to negotiate discounts, determine how rebates and other savings are allocated to reduce premiums, out-of-pocket costs and other expenses, the group said in a statement.

"Increasingly, large commercial payers are requiring 100% of such rebates to be passed through to them directly," PCMA said.

AHIP blamed branded drugmakers for causing the pricing problem, saying they hike the prices of their biologics before biosimilar competition arrives, forcing the latter companies to set their prices higher.

"As branded biologic drug costs continue to soar, biosimilars won't be able to fulfill the promise of greater access and affordability," AHIP said in an emailed statement.