Trump Administration Does About-Face on Drug Rebate Safe Harbors: Opportunity Lost for Biosimilar Competition

It seemed like the best opportunity biosimilar manufacturers had in a long time to gain a competitive foothold upon launch. Secretary of Health and Human Services Alex Azar had promised a repeal of the drug rebate safe harbor as a key component of the Trump Administration’s move to obtain lower drug prices. Today, the Administration reversed its course, leaving the biosimilar industry hanging in the balance.

drug rebate safe harbor
HHS Secretary Alex Azar

According to reports, Health and Human Services found itself between a rock and a hard place. If the drug rebate safe harbor was removed, Medicare part D premiums could rise (plans would compensate for lost rebate revenue by raising consumer costs). There was also no guarantee that lower prices would be passed on to consumers at the pharmacy. Loss of drug rebates would also place great pressure on pharmacy benefit managers (PBMs) to maintain or reduce net drug costs for their plan and employer clients. Accordingly, the removal of the drug rebate safe harbor was opposed by many stakeholders and not supported by enough interests (or with sufficiently influential lobbyists).

The result is a critical missed opportunity for increased access to biosimilars and their attendant savings. Drug rebates can only have value for payers if marketshare exists. In other words, a reference drug manufacturer who holds 100% marketshare before biosimilar launch can offer rebates on every prescription filled—that adds up to millions of dollars for individual PBMs and plans. A biosimilar drug without any marketshare at launch can offer a 50% rebate, but this is meaningless to the payer unless it captures significant marketshare immediately. Without rebates in the equation, biosimilars can compete against reference products on price alone, a much fairer fight for a new drug entering the fray.

Thus, the “rebate trap” will remain a barrier to access. This episode also makes one wonder which trial balloons given flight by the Administration will not come back to Earth. The idea of using the Federal Trade Commission to cut through patent thickets was recently floated and shot down by Texas Senator John Cornyn on the Senate Judiciary committee. We’ve heard about the plan to pin Medicare drug prices to either an international price index or to “most favored nations” pricing, or perhaps even both? Improving the utility of the Purple Book, to actually include useful information about key patent expirations and market exclusivity periods seems simple enough, but even this will take some doing. Interchangeability guidelines published in final form? Well, that should have been completed a couple of years ago.

Despite the approval of 21 biosimilars in the US, the industry does seem to be an awful lot to be worried about. Add in the looming concern in federal appeals court about whether the Affordable Care Act can withstand ongoing attacks concerning the individual mandate, which can then undercut the entire regulatory pathway for biosimilar approval. I know I’m not the only person shaking his or her head. The repeal of the drug rebate safe harbor was a real opportunity to turn the tide.

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