Gottlieb: We Can Still Address Rebate Safe Harbors Through Congress

During his time as FDA Commissioner, Scott Gottlieb, MD, was an ardent proponent of the biosimilar industry. He, along with Health and Human Secretary Alex Azar, introduced several proposals to improve biosimilar access and competition for biologics in an effort to reduce the cost of these expensive complex molecules.

biosimilar naming
Scott Gottlieb, MD

Now, as a Resident Fellow of the American Enterprise Institute, Dr. Gottlieb is still pressing for a biosimilar-friendly environment. A column in the Wall Street Journal continues to advocate for several of the initiatives he introduced at FDA, including those comprising the Biosimilar Action Plan.

The proposal that may have caused the most disruption to the biologic status quo was the removal of the safe harbor for pharmaceutical rebate contracts. The safe harbor protected drug makers from the antikickback statute (section 1128B[b] of the Social Security Act) and helped proliferate rebate contracts between pharma and the payers, distributors, and health systems, usually in exchange for preferred positioning or even nonpreferred formulary coverage.

As discussed in this space in previous months, several stakeholders besides the biosimilar manufacturers (including payers) were heartened by the prospects for removal of the safe harbor. However, fears of rising Medicare premiums for beneficiaries pulled the plug on hopes for the repeal of the safe harbor.

Peter Bach, MD, at Mount Sinai Medical Center, New York, co-authored a recent commentary in the same newspaper, expounding on the belief that price controls on biologics beyond their marketing exclusivity term would be a more effective and efficient tool than biosimilars to save money for the health system. In response to this column, Dr. Gottlieb raised the notion that Congress could raise the safe harbor repeal from the dead.

“Among other dangers, this could trigger shortages of the drugs,” he wrote of Dr. Bach’s proposal. “It would also discourage investment in manufacturing.”

Dr. Gottlieb also pointed out that biosimilar development could be assisted by prohibiting biologic manufacturers from withholding samples of their agent from prospective biosimilar makers through either astronomical pricing or claiming that a REMS program prohibits this type of distribution. These actions would help encourage very early stage biosimilar development. They would do little to help encourage competition (and thus lower prices) once a biosimilar is approved, however.

On the other hand, if drug rebates were taken off the table, biosimilars and biologics would have to compete on list price and discounts solely, a move that would decisively even the playing field. It would also remove the heavy incentive payers currently have to maintain existing formulary coverage for reference biologics.

Barring the removal of the safe harbor and thus the rebate tool, biosimilar manufacturers would have nothing to convince payers to cover them other than tremendous price discounts. In a marketplace like that for the G-CSFs at present and the very crowded trastuzumab marketplace in the near future, this will inevitably mean a race to the bottom in pricing and withdrawal of some competitors. That will result in far less interest in developing biosimilars for newly expiring biologics.

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