CLSA in Inside Health Policy: Gottlieb Causes Confusion With Drug-Rebate Safe-Harbor Comments

By John Wilkerson | InsideHealthPolicy
May 04, 2018

FDA Commissioner Scott Gottlieb caused confusion when he suggested Thursday (May 3) that the federal government reinterpret the treatment of drug rebates in anti-kickback regulations. Many say Gottlieb likely meant that rebates should be considered kickbacks, which would force plans and pharmacy benefit managers to use up-front discounts instead, but drug makers are calling for changes to the interpretation of safe harbor that are much less drastic.

Gottlieb discussed rebate anti-kickback safe harbors in the context of the president’s upcoming announcement of his drug-cost containment plan, but he did not say explicitly that plan will reinterpret rebates.

Gottlieb blamed rebates for rising list prices. In previous speeches, Gottlieb said drug companies are forced to raise list prices to get favorable placement on formularies because higher prices allow pharmacy benefit managers to take bigger rebates.

“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?” he asked. “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 Pharmaceutical Care Management Association responded that drug companies alone are responsible for the prices they set. “Simply put, the easiest way to lower costs would be for drug companies to lower their prices,” the pharmacy benefit manager trade group said in a statement following Gottlieb’s speech.

Council for Affordable Health Coverage President Joel White said drug companies and others seek changes to anti-kickback safe harbor that would allow value-based pay schemes, but that’s a far cry from prohibiting rebates.

“The Administration should create a safe harbor from the Anti-kickback statute (AKS) to allow these team-based models in Medicare and Medicaid,” states an April 24 letter from the council to the White House on the upcoming drug-cost plan.

Such a safe harbor should allow manufacturers and payers to share or donate technology for monitoring patient progress and reporting outcomes on which payment is determined. The letter also states that value-based arrangements should be allowed to include pay for medication adherence.

The Council for Affordable Health Coverage includes members from many sectors, including drug companies, plans, pharmacy benefit managers and employers. Drug companies separately have made similar requests in response to the HHS Office of Inspector General annual solicitation on safe harbors. However, drug makers also have asked that safe harbors be updated to prohibit pharmacy benefit managers from using administrative fees to negotiate favorable formulary placement or to reward high drug prices, according to March 2017 notice by the law firm Ropes & Gray.

Anti-kickback law allows discounts, but the law does not contemplate rebates because when Congress wrote it in the late 1970s, rebates were uncommon in health care, said Brett Johnson, senior director of policy and regulatory affairs for the California Life Sciences Association. As rebates became common in the following decades, the HHS Office of Inspector General wrote regulations to allow them. Since then, several other policies have been developed, include Medicaid best price, average sales price, average manufacturer price, average wholesale price and supplemental rebates, all of which interact with rebates.

Johnson said that complicated system, of which rebates are an integral part, has been in place for decades, so it would be difficult to get rid of rebates.

“It would be a fundamental shift in the economics of how drug spending in federal programs work,” Johnson said. — John Wilkerson (

Read at InsideHealthPolicy (subscription may be required).