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.

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.

Senate Hearings on Drug Pricing: PBMs Pass Blame Back to Drug Makers

If you thought that the Senate hearings on pharmaceutical rebates and pricing was going to help clarify what might be the best avenue for the administration to promote biosimilar access, well, you should have known better. With enough finger pointing to go around, the pharmacy benefit managers and health plans represented at these hearings passed the ball about as well as the Harlem Globetrotters during their pregame routines. It was entertaining but not very elucidating.

Senate hearings on pharmaceutical rebates

One interesting view expressed by Steve Miller, MD, former CMO of Express Scripts and now Executive Vice President and Chief Clinical Officer for the PBM’s new parent Cigna, said that the problem was that marketing exclusivity was too long for the reference biologics. “One of the biggest problems facing the industry is the lack of biosimilars that have come to the marketplace,” he pointed out, placing the blame on the overwhelming patent issues. 

The hearing held on April 9 was chaired by Senator Chuck Grassley (R-IA) and co-led by Senator Ron Wyden (D-OR). Senator Wyden said, “This morning the committee is going to be looking at one of the most confounding gnarled riddles in American health care today…whether pharmacy benefit managers bring any value to the taxpayers is a mystery.”

At a previous hearing in February at which the pharmaceutical companies provided their side of the story, the drug makers pointed to the PBMs and the need for rebates, alleging that they failed to pass through the contracted discounts to patients.

On the other hand, the PBMs blamed the pharmaceutical companies for the high list prices and limited discounts, which require rebating tactics to gain an equitable net price. In its defense, CVS Health claimed that its ability to obtain significant rebates is “a powerful tool to offset” the WAC prices set by drug makers. In response to attacks on the confidentiality of rebating deals, which benefit plans and PBMs rather than patients, they responded that these negotiations do not contribute to higher drug costs. Instead, they help secure the deal-making power of the plan or PBM.

The PBMs did argue a strong case against drug licensing and pay-for-delay deals, which extend beyond generic drugs into the biosimilar space (e.g., AbbVie on Humira). The health plan representatives also emphasized once again that stripping away the rebates would likely result in higher premiums.

One would not call the hearings “clarifying” in any respect. However, it did provide the companies a more public forum to state their positions with regard to the rebate issue and as to the value of their negotiations to the health system in general.

Rumblings About Drug Rebates and Safe Harbors at AMCP

The environment in which managed care has grown since the 1980s is changing at a pace not seen since the introduction of Medicare Part D. Just a couple of years ago, I visited San Diego (where the meeting was held March 25–28, 2019), and the city was very much pleasantly unchanged compared with many visits in the past. This year, an infestation of electronic, dockless scooters and powered bicycles littered the sidewalks everywhere you turned. Some leaning on kickstands, many laid broadsides on busy sidewalks. Inexperienced tourists and seemingly professional riders zoomed through streets and walkways at top speed, menacing pedestrians and sightseers alike. A rapid change with potentially dramatic consequences. The same can be said for the payer environment today.

Although the potential removal of the drug rebate safe harbor was the focus of conversation, many others reverberated in the presented sessions and tableside discussions. We heard plenty on posting drug list prices on direct-to-consumer advertising (and tell me why the US allows DTC advertising in the first place?). The Trump Administration’s strange decision to renew support for a judicial effort at repealing the Affordable Care Act. The imminent departure of Scott Gottlieb, the best friend biosimilar manufacturers may ever have. The latest integration of payers, the Centene–Wellcare transaction.

However, the drug rebate safe harbor question did take center stage. Most payers are convinced that something definitive will now take place after completion of the comment period (deadline is April 6th). Ross Margulies, JD, MPH, Senior Associate from the law firm Foley Hoag LLP, provided a review of action so far. He believes the February 6th proposed rule could be “the biggest change [to Medicare] since implementation of Part D.”


Ross Margulies
Ross Margulies, JD

Mr. Margulies noted that the current drug rebating environment is the result of a 1990s settlement between pharmacies, who sued the pharmaceutical industry and wholesalers, arguing that drug rebates violated the Robinson–Patman Act, which prevents price discrimination. The settlement allowed rebates only when it was connected with marketshare.

Last year, the Department of Health and Human Services complained that rebates are problematic because they can be retained by plans and PBMs, and not reaching the consumer; the rebate is not considered when consumers’ cost sharing is calculated; and may be at the root of the rebate trap, which is a threat to biosimilar uptake.

The Trump Administration sought to address the problem through the anti-kickback statute, which applies to Medicare Part D and Medicaid managed care. The rebate is an inducement to convince the plan and PBM to sell more of the product, said Mr. Margulies. Today, 28 safe harbors protect these parties from persecution, created by the Office of the Inspector General.

According to Mr. Margulies, the proposed new rule amends the drug rebate safe harbors by eliminating the protection for these manufacturer payments to PDPs, MA-PDPs, PBMs, and Medicaid MCOs. The Administration also proposed the creation of two new safe harbors: (1) for fixed PBM service fees that are set out in writing in advance and based on fair market value and (2) for price reductions taken at the point of sale (i.e., at the pharmacy counter), meaning the rebate is completely passed through to the patient.

These changes would be implemented in 2020. “HHS’s goal is to get the WAC price reduced all the way down to net,” said Mr. Margulies. However, it may not lower the cost of drugs overall, per President Trump’s desire. “It may change some behaviors, though, as plans would not be incented to prefer high price/high rebate drugs.” He pointed out that moving towards a point-of-sale discount would represent a new model. “It is a major change for how pharmacies will be paid,” he noted, and would likely involve the pharmacy receiving the patient’s copayment, a reimbursement from the health plan, and then a retrospective chargeback to the manufacturer to make the pharmacy whole.


How the manufacturers react will be the subject of some interesting conjecture. Mr. Margulies stated that the federal government hopes 15% of the former rebates will be retained by the manufacturer, with 75% to be applied as discounts at the point of sale. The remaining amount would then go towards a reduced list price. He said, “Manufacturers could theoretically make the WAC price the net price (no discount), which would cost the system a great deal. Patients with fixed copays will not likely see much or any difference.” On the other hand, premiums could rise as much as 25% to compensate for lost rebates at the plan level. However, it would not be reasonable to believe at this time that the drug manufacturers would simply lower their prices 15% en masse.

He doesn’t believe that Medicaid will be affected, as their rebates are already passed directly through to the states (Medicaid beneficiaries have very low or no copays).

In the end, Mr. Margulies explained, Health and Human Services has no legal authority to prohibit drug rebates. Any final proposal must go through Congressional action before it can be enforced as law. Pharmaceutical contracting is moving head long into a new era, much like personal transportation in San Diego. I hope neither turns out to be accident prone.

A Conversation With Steven G. Avey, MS, RPh

In May 2016, I interviewed Steven Avey, Vice President, Specialty Pharmacy, MedImpact, for the Center for Biosimilars. That conversation speculated on the potential for biosimilars, having only recently experienced the launch of the first biosimilar in the United States, filgrastim-sndz. At the Academy of Managed Care Pharmacy’s 2019 annual meeting last week, I sat down with Steve once again to gain his perspectives on changes in the biosimilar environment.

Biosimilars Review & Report: Congratulations on winning the Academy of Managed Care Pharmacy Foundation’s Steven G. Avey Award! This is sort of a double honor, first having the award initially named after you, and then many years later, winning it yourself!

Steve, you’re considered one of the real thought leaders in managed care pharmacy. What do you consider to be the main challenges facing your colleagues today?

Steven Avey, PharmD: Thank you. There are many real challenges today. First of all, we have the potential for drug rebates to go away. It’s clear that something is going to be done (and we don’t know what that is), and it could apply not only to Medicare Part D, but possibly Medicaid and commercial. We will need to wait and see.

Steven Avey, MS, RPh

Another challenge relates to the Administration’s emphasis on reducing list prices for drugs. This will not only influence the industry, but managed care pharmacy as well.

That challenge is part of the ongoing concern about the cost of specialty medications (and continuing price increases), and the greater call from payers for a better understanding of the value that they’re getting from these medications. Are the people who are taking specialty medications actually getting real benefit?

BR&R: In addition to payers, employer purchasers and others have been requesting a better understanding of the value of specialty medications. This has been sought for 10 years or more. Are we any closer today in getting a grip on this?

Avey: I think we are. Many PBMs are getting more involved in data management regarding these medications. The better we get at analyzing the medical and pharmacy data together, the closer we will get to understanding the value of these specialty medications.

To give you an example, a PBM today is basically reviewed and assessed on what its financial picture looks like—are you able to bend that specialty cost trend? But if you don’t know what these specialty agents are really doing for the patient population, how can you tell if covering them is the right thing to do? In order for us to know that, we have to evaluate the medical and pharmacy data together and focus on the total cost of care of that individual member. Over time, you can say that our costs are either going down or not. Then, we can ask the question, am I using the right agent or should we be using those very expensive drugs for these patients?

Given the lack of the medical and pharmacy data, we just don’t know. That’s one of my greatest frustrations.

BR&R: Let’s switch to biosimilars. Do you believe that if the rebate safe harbor is removed for Medicare, payers will also stop seeking them?

Avey: Yes. It will definitely trickle into the commercial side. I can see a day in the not too distant future where we don’t rely at all on rebates. It will be a new world focused almost solely on list price reductions.

BR&R: Will that give biosimilar manufacturers an edge?

Avey: It will be a boon for biosimilar makers! When the rebate goes away, then all that remains is the list price. That will be a huge advantage for biosimilars.

BR&R: Well, if I’m a reference biologic maker, whose R&D costs were paid off a decade ago and whose profit margin is extremely high, I can still lower my WAC price considerably to compete with the biosimilars, right?

Avey: They can, but they will have to compete with three or even five biosimilars who do not have to spend millions of dollars on advertising or promotions like the innovators do to keep their brand’s exposure and visibility high. The innovator drug maker will do everything possible to avoid losing that high market share.

Now, I haven’t seen much of this in print, but payers are angry—they’re angry at these 10% to 20% increases in costs each year from the innovator drug manufacturers. As a payer, if a biosimilar is available, why would I want to support that innovator maker, who has dramatically raised costs for the last 10 years? That gives biosimilar manufacturers the advantage: “Hey, I’m the new guy helping you to reduce costs. How about supporting me instead?” I think many payers will act on this message.

BR&R: In our conversation in April 2016, that was the gist of what you said.

Avey: And I haven’t changed my mind.

BR&R: I asked, how soon are you going to drop the AbbVie contracts (when there was some expectation that biosimilars would be available before 2020), and you said, “As soon as humanly possible.” And you weren’t the only one who said this.

Avey: Absolutely. And now the timeline has been extended to 2023. This just made us all the more angry, because this is because AbbVie filed 100 patents on Humira®, which overwhelmed what the BPCIA was intended to address. The result is that AbbVie is going to make $16 billion a year (and more each year) for 4 more years before we’ll be able to see some competition for their market.

BR&R: Genentech (Roche) is coming out with subcutaneous forms of Herceptin® and Avastin®. Will these introductions change the way you position the biosimilars for these two cancer agents, when they are finally launched?

Avey: We’ve dealt with this 15 years: It’s really no different than what we’ve seen occur with conventional agents. Consider a sustained-release form of a brand that is approved around the time the generic for the immediate-acting formulary is launched. You look at the new product and ask, what does that premium in pricing buy us? Is it a site-of-care advantage? Maybe, but does it really offset the cost of using that more expensive agent? We generally decide to cover the lower-priced (albeit it not as convenient) dosage form. With biologics, the cost differential between the new agent and the biosimilar is very large, and there is very little advantage for the new subcutaneous formulation.

BR&R: We are seeing something similar playing out right now with pegfilgrastim. Most of the market has moved to the use of Amgen’s on-body injector OnPro®, and the biosimilars are being launched using prefilled syringes. To the extent that payers are interested in eroding OnPro’s marketshare, assuming the price difference is substantial, OnPro does represent a bit more patient convenience. Some payers may be thinking this way. To the extent that this will happen may predict some similar effect for the trastuzumab and bevacizumab markets.

Avey: You have to remember that payers are receiving a lot of criticism that we’re not doing a good job of supporting the biosimilars. Quite frankly, the biosimilar drugs that have been approved up until now are really covered under the medical benefit. We have a little trickle that can be covered under the pharmacy benefit. Payers have only so much bandwidth. They know that under present conditions, a new biosimilar has to build market share from scratch. Some have said, “You know, it’s not worth the effort. We have other fish to fry. We’re not going to get too excited yet about these products.”

We have an HMO client that did an amazing job moving market share away from Neupogen® to Granix®. But they own their prescribers and they can easily analyze the combined medical-pharmacy spend. They saw a dramatic lowering of expenditures.

BR&R: Are you expecting biosimilar products for trastuzumab and bevacizumab to be managed under pharmacy?

Avey: We see those drugs under the pharmacy benefit now. Remember that those drugs have a greater utilization than the other biosimilars that have been launched to date. I do think that they will attract a lot of attention. And if the rebates do go away, that takes the market share question right off the table. The biosimilars will do quite well.

BR&R: The four-letter suffixes: The FDA recently came out with an updated guidance, saying that the agency will no longer consider adding four-letter suffixes to previously approved reference agents. However, they will continue to add suffixes to newly approved biosimilars and interchangeable agents.

Avey: Everybody is trying to figure out what’s next here. When we look at biosimilars’ pharmacokinetic information, one biosimilar is going to be somewhat different than another. I don’t think it will be an insurmountable problem, but just a headache. We’ll just have to be more in synch with our specialty pharmacies to ensure that they stock and dispense this one biosimilar with this one four-letter code.

BRE&R: Have we made any progress from an educational standpoint here? Do providers and patients still think that a product with a four-letter code is not comparable to the originator brand? What is the level of discomfort today?

Avey: I’ve watched this carefully over the last year. I don’t think there will be huge angst from the payer. The prescribers and to some degree the patients that will need more educating to make them feel more comfortable. We will need better educational materials and communications for them. The situation is really no different than when we started instituting the generic substitution laws. We heard a lot of claims that docs will never prescribe generics, patients will never take them. We had to do a lot of educating to alleviate their fears, and to help prescribers understand that these drugs work like the brands work. At the end of the day, I don’t think that this will be a long-term challenge.

Is It About the Rebates, Net Costs, or Both?

It sounds a bit absurd, but we shouldn’t be surprised at this point: Health plans may not be satisfied if pharma companies simply dropped their drugs’ retail prices. They still want their drug rebates on top of this, says one well-known industry analyst. The pharmaceutical industry is stunned, because its members believed that the net price was the only thing that really mattered (or so they were told). It seems that payers’ addiction to rebates is even tougher to kick than originally thought.

Drug rebates
Ronny Gal

Ronny Gal, an analyst from Sanford Bernstein, told Fierce Pharma  on February 11 that UnitedHealthcare will be seeking “equivalent” rebates on medications, regardless of whether a company drops its price. According to the article, UHC executives confirmed the statement. Their logic isn’t completely crazy, but it is problematic. The rebates, plans have argued, help minimize consumer premium increases.

Let’s assume that this is the case: larger plans would lose millions of dollars in revenue if their 20% rebate, for example, were exchanged for simply a 20% decrease in wholesale acquisition cost (WAC). If the plan is truly using this revenue to subsidize higher medical costs, then members’ premiums would have to rise a commensurate amount.

Well, that just puts the pharmaceutical companies (and even biosimilar makers) in a difficult position. If drug A costs $600 per month, and to comply with the federal government’s efforts (and those of some pharmacy benefit managers [PBMs]) to lower medication prices, they drop their price to $400 per month. Don’t scoff, the makers of the PCSK9 hypercholesterolemia drugs just cut their WAC by 60%. Similarly, makers of hepatitis C virus treatments whacked their WACs by significant amounts in 2018. Assume the manufacturer of drug A was giving the PBM a 20% (or $120 per month per prescription) rebate to maintain co-preferred position, and the PBM shared half that rebate with the health plan ($60 per month per prescription). Now, let’s also assume that the pharmaceutical company refuses to add a rebate on top of this amount. Who will make up the difference, if the health plan insists upon it? The PBM? Don’t bet on it.

For biosimilar manufacturers, this lower price plus rebate scenario can be very discouraging. If you agree that a biosimilar maker can only gain access if it maintains a 25%+ discount to the reference drug manufacturer’s WAC, then the prospect of an additional rebate puts further price reduction pressure on their profitability. That could bolster the argument that pharma should steer clear of the biosimilar marketplace.

We always understood that from a payer standpoint, net cost was the primary objective. We were told many times that although it didn’t matter as much how the number was arrived at, the health plans preferred lower WAC as opposed to higher rebates. Now, we’re not so sure whether the rebate trap hasn’t ensnared those health plan executives.

Secretary Azar Announces Plan to Remove Safe Harbor Protection for Drug Rebates

One of the more challenging lines of attack on high pharmaceutical pricing has been solving the “rebate trap.” Although not a singular item in the Trump administration’s Biosimilar Action Plan, Secretary of Health and Human Services (HHS) Alex Azar had begun the process of reviewing how to begin the offensive against the current system of pharmaceutical rebating last summer. On January 31, HHS announced that they have a plan. An open question is how that plan will affect biosimilar access.  

Health and Human Services Secretary Alex Azar

“We are taking action to encourage the industry to shift away from the opaque rebate system and provide true discounts to patients at the point of sale,” Secretary Azar told the New York Times.

What Is Known to Date

In releasing its proposed rule, HHS will seek to strip pharmaceutical rebates from the existing safe harbor legislation pertaining to public plans, such as Medicaid, Medicare Advantage, and part D providers. The rule “proposes to amend the safe harbor regulation concerning discounts, which are defined as certain conduct that is protected from liability under the Federal anti-kickback statute, section 1128B(b) of the Social Security Act (the Act),” according to the announcement. “The amendment would revise the discount safe harbor to explicitly exclude from the definition of a discount eligible for safe harbor protection certain reductions in price or other remuneration from a manufacturer of prescription pharmaceutical products to plan sponsors under Medicare part D, Medicaid managed care organizations as defined under section 1903(m) of the Act (Medicaid MCOs), or pharmacy benefit managers (PBMs) under contract with them.” The expectation is that, although the rule would apply to federal health benefits, it would trickle down to private payers.

At the same time, HHS is proposing to establish two new safe harbors. To encourage the passing of rebates or other discounts directly to patients at the pharmacy counter, the first safe harbor “would protect certain point-of-sale reductions in price on prescription pharmaceutical products.” A second proposed move would protect “certain PBM service fees” under a safe harbor. This alludes to the use of contracts between a PBM and manufacturer in which the PBM receives a fixed fee in return for services that assist manufacturers (in other words, not for services provided to payers).

The pharmaceutical rebating safe harbor would be eliminated in January 2020, if the rule is enacted as written. The public comment period began immediately and will end on March 31. It will take far less time before the stakeholders publicize their views. According to the Pharmaceutical Care Management Association (a trade association representing the PBM industry), the elimination of the current safe harbor protection could create access problems. “While we are reviewing the proposed rule, we stand ready to work with the Administration to achieve our shared goal to reduce high drug costs. Pharmacy benefit managers (PBMs) are part of the solution to high cost prescription drugs. Drug makers alone set and raise prices,” stated JC Scott, President and CEO of the Association.

The trade association for pharmaceutical manufacturers stated that the proposal would benefit patient access, by lowering the cost of medications like insulin.

Leveling the Playing Field for Biosimilars

The move away from drug rebates may actually create problems for health plans, which had professed that the portion of the rebates passed through to them from PBMs had enabled plans to subsidize care costs. Therefore, the removal of the rebates may result in premium increases for Medicare beneficiaries. On the other hand, HHS believes that removal of the safe harbor could result in lower out-of-pocket costs for Medicare patients. Mr. Azar believes these lower costs could exceed 30% for not only insulin but for drugs to treat other chronic diseases.

As written on these pages many times in the past, the rebate trap significantly disadvantages biosimilar manufacturers who continually fight a battle for market access. It is at the heart of Pfizer’s lawsuit against Janssen Biotech for the infliximab business. Stripping away the safe harbor does not automatically improve access to biosimilars, as the manufacturers for reference products can simply compensate by lowering their retail prices or increasing discounts. However, it does take away the impetus for payers to favor reference manufacturers because of the rebate revenue they receive. In the long run, this would level the playing field for biosimilar manufacturers, and the effect would be amplified if these rebating practices also withered for private payers. We do know that many actions by those with the best intentions can be subverted by unintended consequences. As an expert in the pharmacy field once told me, if rebates are disallowed, “the PBMs will still find a way to make their money.” Health plan premiums may rise as PBM fees increase to compensate, and this could result in greater numbers of uninsured overall. At least in this case, it may be more difficult to see a potential downside for biosimilar makers.