How Rebate Walls Block Access to Affordable Drugs

Tomorrow the Health Subcommittee of the House Ways and Means Committee is holding a hearing on promoting competition to lower Medicare prescription drug prices. During the hearing, Representatives should ask about a little known practice that encourages health plans to use older, more expensive medicines and that discourages new, more affordable medicines-a practice known as "rebate walls."

Here's how it works: drug companies offer billions of dollars every year to health plans and pharmacy benefit managers (PBMs). In exchange, the health plans and PBMs give drugs and therapies preferential access, and create "steps" that require patients to try those old medicines first before they are given newer medicines-a system known as "step therapy."

However, rebates discourage the adoption of new prescription drugs. And when an older drug has received approval for multiple diseases and has built up a lot of prescriptions, new drugs are further at a disadvantage. The company that manufacturers the older drug can "bundle" its rebates for all those prescriptions and use it as a weapon. Some drug companies are using the large group of rebates, also known as a "rebate wall", as a negotiating tactic-they demand that health plans not favor or exclude newer medicines from their formularies, even if the newer medicines lead to better outcomes.

One example of this problem are when Johnson & Johnson used rebate walls to protect its drug Remicade and stifle competition from Pfizer's Inflectra, a lower cost biosimilar drug. David Balto, an antitrust expert and the former Policy Director of the Federal Trade Commission, reviewed the case and wrote that "the rebates for Remicade were allegedly bundled with other Johnson & Johnson products, which disincentivized insurers from reimbursing for Inflectra and providers from purchasing Inflectra or other biosimilars." Another case is when Allergan bundled rebates to protect its drug Restasis from competition from Shire's Xiidra and prevented it from penetrating the market, even though Xiidra is by all accounts a better drug.

Mr. Balto has previously written about how the Federal Trade Commission should investigate rebate walls and aggressively bring enforcement actions. Rebate walls hurt consumers in a number of ways-they have to pay higher prices for drugs, which means they are less likely to take their medication, and this leads to worse treatment outcomes. It also costs more money overall.

How can this be fixed? One possible solution: the Trump administration has announced a proposed rebate rule that eliminate the anti-kickback safe harbor that is currently applied to rebates. Another idea would be indication-based pricing, which is requiring prices and rebates to be negotiated for each drug and not bundled together. And as we mentioned earlier, the Federal Trade Commission could and should forbid drug manufacturers from erecting rebate walls.

We will be attending the hearing tomorrow, and urge the committee members to draw attention to rebate walls, how they increase drug costs and block access to more affordable drugs, and how to stop them.