The healthcare industry is growing worried after the head of the Food and Drug Administration suggested that a federal law to prevent kickbacks should be used to rein in high drug prices.
Wall Street analysts say FDA Commissioner Scott Gottlieb’s remarks signal that the administration could be more aggressive than it has been in taking on high drug prices and the drug rebate system.
Gottlieb and Health and Human Services Secretary Alex Azar recently have been criticizing the rebate system used by insurers and drug middlemen, called pharmacy benefit managers, to negotiate for discounts to pharmaceuticals. The officials have said that consumers don’t receive enough of the discounts negotiated between payers and drugmakers.
But Gottlieb surprised the healthcare industry Thursday during a speech before the Food, Drug and Law Institute in Washington. He said the federal government could re-examine if the rebates should no longer be exempt from a federal law that prohibits kickbacks.
“Such a step could help restore some semblance of reality to the relationship between list and negotiated prices, and thereby boost affordability and competition,” Gottlieb said in his prepared remarks.
The federal Anti-Kickback Statute prohibits any reward or kickback used to receive business from a federal healthcare program. But it does not apply to discounts for drugs reimbursed through programs such as Medicare or Medicaid. That is what Gottlieb says should be re-examined.
Gottlieb is likely talking only about federal programs such as Medicare Part D or Part B, which reimburse private payers for drugs.
Federal action on combating high drug prices so far has been limited to improving the speed of approval of generic drugs, but Azar and Gottlieb’s comments have created new concerns for the industry.
“The speeches by Azar and now Gottlieb increase the uncertainty and show a willingness by the administration to get more aggressive,” the Wall Street research firm Evercore ISI wrote in a research note reported by Reuters. “The government could threaten fines or other legal action to force changes in the rebate system that could potentially pressure the gross-to-spread and impact economics in the drug channel.”
The comments are likely to be a “warning shot” to the entire drug chain, one analyst said.
“The Trump administration and the GOP have always promoted competition and market forces as the best way to bring down drug prices, instead of the more regulatory bent of Democrats,” Rick Weissenstein, an analyst with the Cowen Washington Research Group, wrote in a note Thursday. “Gottlieb is warning that if you don’t let the market work, you will be faced with more draconian solutions in the future.”
Gottlieb’s comments also elicited a heated response from the pharmacy benefit manager group Pharmaceutical Care Management Association.
“Getting rid of rebates would leave patients and payers, including Medicaid and Medicare, at the mercy of drug manufacturer pricing strategies,” the group said. “PBMs have long encouraged manufacturers to offer payers alternative ways to reduce net costs.”
The group said the problem is that drug companies set high list prices “according to whatever the market will bear.”
The pharmaceutical industry in turn has tried to paint insurers and pharmaceutical benefit managers, which oversee drug plans for employer-sponsored and union health plans, as the problem with drug prices because of the complicated system used to extract rebates for drugs.
