FDA Commissioner Blasts Health Insurers: “You’re Doing it Wrong”
Theoretically, the idea of insurance is to protect people from the catastrophic, from tornadoes to floods. But, when it comes to health it is to protect us from cancer or any other devastating disease.
In order to make this financial protection available, the public pay into the system. Effectively, the healthy are supposed to subsidize the sick. However, according to CNBC, FDA Commissioners Scott Gottlieb blasted this notion, claiming that health insurers are actually doing it all wrong.
At a conference organised by the health insurance industry, he said, “Sick people aren’t supposed to be subsidizing the healthy. That’s exactly the opposite of what most people thought they were buying when they bought into the notion of having insurance.”
The claim seems to be focused on the health of the market for biosimilars, which are copycats of complex, biologic medicines. He has concerns over industry consolidation, as well as what he called rigged payment schemes which are stifling their development.
However, his remarks have been taken as a critique of the U.S. system for pricing and paying for drugs more broadly. He has expressed that each faction of the healthcare industry is complicit in boosting prices up, at the expense of the most sickest of patients.
During this critique, he took aim at rebates, an increasingly popular target in the drug pricing debate. These are discounts on medicines negotiated by pharmacy benefit manages on behalf of insurers.
The rebate system is opaque because of consolidation among PBM’s and insurers, which means that system can result in ever-higher drug prices and everyone from drugmakers to the middlemen to insurers are all taking a slice of the pie, Gottlieb continued.
Therefore, he suggested that there is a “peversive incentive” to spread the benefit of those rebates across plan members, rather than applying them directly to lower the costs of drugs for the sickest patients, which means a system where the sick subsidizes the healthy.
“Patients shouldn’t face exorbitant out-of-pocket costs, and pay money where the primary purpose is to help subsidize rebates paid to a long list of supply chain intermediaries, or is used to buy down the premium costs for everyone else,” he added.
“Is a patient really in a position to make an economically based decision? Is the co-pay going to discourage overutilization? Is someone in this situation voluntarily seeking chemo?”
Of course that answer is no. “Yet the big co-pay or rebate on the costly drug can help offset insurers’ payments to the pharmacy, and reduce average insurance premiums,” he commented.
These views were welcomed by industry observers. Adam Fein, CEO of Drug Channel Institute, agreed as he said, “Too many benefit plans operate like reverse insurance. The sickest people taking medicines for chronic illnesses generate the majority of manufacturer rebate payments. These funds are then used to subsidize the premiums for healthier plan members.”
As expected. health insurers and pharmacy benefits managers were not in agreement. “It’s unfair to blame payers – who pay 2/3 the cost of drug benefits – for seeking the lowest costs in a marketplace where they have no control over the prices drugmakers set,” said the Pharmaceutical Care Management Association, the PBM industry group. “Likewise discounts – not the pharmacy benefit managers they hire to negotiate discounts – determine how rebates and other savings are allocated to reduce premiums, out-of-pocket costs and other expenses.”
Moreover, some went on to express surprise that this was the attitude of the FDA Commissioner, especially since the agency doesn’t take a role in drug pricing. He countered this argument, suggesting that ensuring biosimilars have a pathway to market is a public health concern.
Such a focus on rebates has in fact spurred change. UnitedHealth has said that it would apply drug rebates directly to lower costs for patients on their prescriptions starting next year. The company said that it’s part of a move to “simplify pharmacy benefits, deliver savings directly to its customers and improve their healthcare experience.”
Although reversing these trends would mean that the health insurance model would become less backwards, it wouldn’t necessarily mean lower costs, instead it would just be a redistribution of them.