- Pfizer CEO Ian Read said Tuesday he believes the U.S. will eventually move to a system without drug rebates, pointing to the Trump administration's proposed plan to restrict the kickback exemptions that permit drugmakers to offer price concessions in exchange for coverage from payers.
- Read's comments are a notable sign of support from one of the largest pharmaceutical firms for major changes to how drugs are paid for in the U.S., and come several weeks after President Donald Trump confronted Pfizer over price hikes on several dozen products.
- The pharma industry has frequently blamed rebates as a major factor in rising prescription drug costs, claiming the need to provide discounts to insurers has forced companies to increase list prices. If rebates were eliminated, it would be a blow to pharmacy benefit managers like CVS Health and Express Scripts.
Pfizer and the Trump administration appear to have patched their differences rather quickly, with the pharma CEO voicing his support for the president's drug pricing plan on an earnings call Tuesday.
In a rare public retreat three weeks ago, Pfizer temporarily reversed price increases it took on about 40 products after President Trump criticized the drugmaker. Explaining the decision, Read said Pfizer sought to give the administration time to implement its pricing blueprint — a move followed by a number of other major drug companies.
Now, it's a little clearer what Pfizer and its CEO are anticipating from the White House.
"I believe we will go to a marketplace where we don't have rebates," Read said. "I do believe that the intention of the administration is to remove the safe harbor for rebates," he continued, referring to the legal exemption under which rebates don't fall afoul of anti-kickback rules.
Attacking rebates has become a tactic of the pharma industry as it defends itself from criticism on rising prices. Currently, drugmakers offer PBMs and insurers rebates in exchange for improved access to their drugs. This creates a system where the net price paid is often widely different from the listed price of a medicine.
In 2017, for example, list prices for protected brands — drugs still defended by patent exclusivity — rose 6.9%, according to Iqvia. Accounting for rebates and discounts, however, brought the net price increase down to 1.9%, below the level of inflation.
Pfizer's Read said eliminating rebates, which he characterized as pharma-provided "subsidies" for the healthcare system, would help reduce patient out-of-pocket costs.
It's a position supported by PhRMA, the industry trade lobby, which submitted comments on the president's pricing blueprint backing the phase-out of rebates to PBMs. But it's also one that conveniently downplays the direct hand drug companies have in setting the initial price of a medicine.
For their part, PBMs point to rebates as evidence they are delivering savings that insurers can use to lower premiums or otherwise pass on to consumers.
Asked whether Pfizer would be able to continue to grow without the list price increases typical of past industry practice, Read said mid- to high-single digit growth would still be feasible.
In particular, Read suggested that drugs like Pfizer's arthritis treatment Xeljanz (tofacitinib) might be better able to compete without incumbent rivals forestalling competition through aggressive rebating strategies.
Read's comments also indicate the drug industry and the Trump administration are more in lockstep then might be implied by some of Trump's recent rhetoric against Pfizer and others.
"We are examining whether we need to disrupt the entire system of rebates, which drives list prices ever higher while patients keep paying more," said Alex Azar, Department of Health and Human Services (HHS) secretary, in remarks to the 340B Coalition earlier this month. "Eliminating rebates within the Medicare program, pushing the system toward fixed-price discounts, is well within our administrative powers."
This month, HHS submitted a proposed regulation on drug rebates to the White House Office of Management and Budget. While details aren't available, the title is suggestive of changes it might propose: "Removal Of Safe Harbor Protection for Rebates to Plans or PBMs Involving Prescription Pharmaceuticals and Creation of New Safe Harbor Protection."
Major regulatory changes such as eliminating the safe harbor protection will take time. HHS's proposed rule still needs to be officially published, go through a comment period and be finalized before taking effect.
Still, Read said his impression is the administration is moving with a "huge sense of urgency."