FDA chief questions protections on drug rebates, stocks fall

[May 04, 2018] By Deena Beasley

(Reuters) - U.S. Food and Drug Administration chief Scott Gottlieb on Thursday questioned whether rebates that drugmakers provide to health insurers should remain protected by federal law, sparking new concerns on Wall Street over efforts to curb drug pricing.

Gottlieb was referring to the common practice of pharmaceutical companies setting a high "list price" for a drug, and then lowering the cost for health plans through hefty rebates in exchange for the broadest access to patients. In recent weeks, he has criticized these practices for keeping drug prices high and locking out competitors.

"What if we took on this system directly, by having the federal government reexamine the current safe harbor for drug rebates under the Anti-Kickback Statute?" Gottlieb said in remarks prepared for a Food and Drug Law Institute conference and posted on the FDA's website.

"Such a step could help restore some semblance of reality to the relationship between list and negotiated prices, and thereby boost affordability and competition.”

The anti-kickback law makes it illegal to pay an incentive for drugs or services that Medicare, Medicaid or other federal healthcare programs cover.

President Donald Trump is expected to unveil new proposals next week to curb rising drug costs for Americans and until recently, Wall Street had expected that they would stop short of measures that would have a major impact on drugmakers.

However, Health and Human Services Secretary Alex Azar on Wednesday signaled Trump’s intention to take stronger action. Gottlieb’s remarks on Thursday suggested the administration would take a harder line.

“The speeches by Azar and now Gottlieb increase the uncertainty and show a willingness by the administration to get more aggressive,” Evercore ISI analysts Ross Muken and Michael Newshel wrote in a research note. "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 shares of some drugmakers fell after Gottlieb's comments. Biogen Inc lost 2.8 percent to $266.44, Celgene Corp dropped 1.7 percent to close at $85.40 and Amgen Inc fell 1.7 percent to $166.39.

The administration and members of Congress have demanded that insurers and pharmacy benefit managers pass on more of the rebates they receive to consumers outraged over rising costs at the pharmacy counter. Many Americans now have health plans with higher deductibles or co-payments, making them responsible for more of their medical costs.

In his speech, Gottlieb also focused on a need to encourage competition between drugmakers by changing policies allowing them to take temporary advantage of protections under Medicare's prescription drug plan.

The FDA chief also repeated previous calls to close loopholes that can delay the entry of generic drug competition, including for so-called "biosimilar" versions of biotech drugs.

(Reporting By Deena Beasley. Editing by Michele Gershberg and Susan Thomas)

[© 2018 Thomson Reuters. All rights reserved.]

Copyright 2018 Reuters. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.  Thompson Reuters is solely responsible for this content.