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.

Budget Proposal Floats an Idea to Discourage Pay-for-Delay Deals

The Department of Health and Human Services (HHS) had signaled in the past that it would seek to discourage the signing of “pay-for-delay” agreements. These agreements contribute to slow access to less-expensive biosimilars. The recently released budget proposal from the Trump Administration, though dead on arrival in Congress, does include a provision that could bring biosimilars to the market earlier.

Under this proposal, any reference product manufacturer involved in a pay-for-delay agreement would see drug reimbursements cut by close to 40%. Specifically, the originator drug would be paid at a new rate, ASP minus 33%, down from the standard ASP plus 4.2% (ASP + 6% not considering the financial sequester).

pay-for-delay agreements

The Trump Administration added that this new reimbursement rate would be imposed, not only for those signing other manufacturers to pay-for-delay agreements, but also if the originator manufacturer engages in “anticompetitive action” once marketing exclusivity expires. This action is likely a reaction to both the Pfizer v. Janssen Biotech lawsuit involving infliximab and the creation of patent thickets.

These provisions in the budget proposal do hold some potential. Yet the pharmaceutical industry will argue that the arrangements that are currently signed that delay launch for biosimilars of adalimumab and trastuzumab, for example, do not involve upfront payments to the prospective biosimilar manufacturers. They simply end expensive patent litigation, in exchange for royalty payments upon biosimilar sales commencing on an agreed-upon date. In contrast, pay-for-delay deals for generic drugs were just that —a large upfront payment by the brand manufacturer to persuade the generic drug maker to allow the former to rake in more profits.

Arrangements of this type do still significantly delay the launch of previously approved biosimilars. If one manufacturer decides to launch “at risk” (before patent litigation is resolved), that company could attempt to gain a large share of the market. Pfizer planned to do this with Inflectra®, but miscalculated the discounts that would be necessary to move marketshare. Janssen took action to drastically increase the rebates it offered, making it less attractive to payers to move away from Remicade®.

Perhaps the more intriguing question here, is what would be the definition of “anticompetitive action?” The administration could define this quite broadly (which no doubt will evoke actions, including lawsuits, to render the phrase harmless). If it defines the current drop-the-patent-litigation-for-royalties arrangements as anticompetitive, it could result in big savings for the government in lower payments for drugs like Humira® and Herceptin®. The definition of anticompetitive action could even be extended to exclusive positioning on formulary (in exchange for more rebate dollars). Of course, this also may depend on how the government, pharmacy benefit managers, and payers view rebates in the future.

If that should happen, don’t expect private payers to continue to reimburse for originator drugs at the higher rate. They will want similar savings (particularly if they cover both Medicare and commercial populations).

Back to reality for a moment: The budget proposal has no chance of approval in a Congress with a Democratic majority. However, this provision does signal how HHS wants to approach the pay-for-delay issue. And it may receive a warmer reception as part of other legislation.

Biosimilars and Drug Rebates: A Foot in the Door to Access?

At the September 5–7, 2018 GRx+Biosims meeting, I had the opportunity to moderate a session with three highly experienced biosimilar industry executives. They included Gary Deeb, Senior Vice President, Global Licensing and Business Development, Lupin Pharmaceuticals; Chrys Kokino, MBA, Head Global Biologics— Commercial, Mylan; and Mike Woolcock, MBA, Senior Vice President, Commercial Operations, Apobiologix. In the hour-long session, we covered a range of sticky topics. This post sums up some of the information gained on one aspect—the question of price transparency, recent FDA action to address drug rebates, and whether deemphasizing drug rebates will help biosimilars gain access.

One issue that is getting an awful lot of attention lately is the question of price transparency. This has been highlighted by the difficulties that Pfizer has had in gaining traction for its infliximab biosimilar, resulting in claims of exclusionary contracting by Janssen to protect the latter’s marketshare. One of the principal tools used by the reference biologic manufacturer is its power to rebate. When a drug has the lion’s share of utilization, rebates become very potent inducements to payers to provide or maintain preferred or exclusionary status on formulary. Therefore, the issue of biosimilars and reference drug rebates can be an important one for the industry.

biosimilars and rebatesIn response to the challenges of biosimilars gaining uptake in the US, Health and Human Services Secretary Alex Azar has been investigating whether safe harbor laws that currently protect drug rebates from anticompetitive lawsuits can be changed. This move can affect revenues for both pharmacy benefit managers (PBMs) and payers who share in the rebate monies. It raises a related question, however: Would biosimilar manufacturers be better off competing on list pricing (i.e., wholesale acquisition cost) alone? And does the issue of biosimlars and rebates really matter?

In the backstage green room, this topic generated much discussion among our panelists. And quite frankly, the answer to this question is not yet in.

In previous market research and access projects performed for pharma and their agencies, it has been clear that health plan medical directors and pharmacy directors would prefer competition based on discounted WAC, whereas PBMs prefer to retain their rebate revenue. However, the plans do share in drug rebate revenue to varying extents, which they are quick to point out are helpful in holding down premium increases or funding other projects beneficial to members and patient care. Hence, they are stuck in the rebate trap as well. They are not generally eager to add a new preferred drug even if the manufacturer is offering powerful discount WAC plus competitive rebate; they realize that the rebate revenue is based mostly on how much marketshare the drug maker can gain (and how quickly it can amass marketshare).

The biosimilar industry representatives at our panel discussion were similarly reticent. Does it represent an opportunity to break the exclusionary contracting hold of companies like Janssen? Without high rebates to cement a reference drug’s place as a preferred or the only covered biologic, other manufacturers can get their foot in the door and compete for marketshare based on price alone. This does not mean that prices would necessarily be more transparent, however. One would expect that discounted prices negotiated (from one plan to another or one PBM to another) would differ and remain confidential in nature. In other words, Kaiser Permanente Southern California could still only guess what Blue Shield of California was paying for infliximab and vice versa.

If the average sales price (ASP) methodology were unchanged, one would expect the ASP, which reflects discounts and rebates, to be closer to the WAC price by the amount no longer rebated. But the wild card in this scenario would be the pharmaceutical and PBM industries’ reaction. Is there a way to reclassify rebates as some other payment, like “administrative fees”? Our panelists believe that the PBMs, for example, will not easily forfeit a revenue line representing pure profit, regardless of its size. One would need to anticipate some attempt to retain this revenue.

The issue of biosimilars and drug rebates may only be shifted, in the end. Payers would still want to see the lowest net cost for any product. In 2018, they don’t care too greatly about how this is achieved, through rebates, discounts, portfolio contracts, or other means. If pharmaceutical rebates were deemphasized, my own guess is that at least biosimilar manufacturers would not be disadvantaged once approved, simply because they don’t have any existing marketshare. And it would also test a payer’s fortitude in foregoing its own drug rebate revenue.