Building on the success of generics, and creating the same kind of success with biosimilars, will require not just efficient approval to enter the market, but also payment systems that can harness new competition. So I want to talk about both elements of a successful generic and biosimilars market today: our efforts at the FDA to foster competition through efficient, safe approvals, and our efforts to create the right incentives, and remove any wrong incentives, to support that competition.
As Prepared for Delivery
Thank you, Chip [Davis] for that introduction.
Good morning, everyone, and thank you so much for welcoming me here today.
I’m really glad to be here because there is so much success to celebrate in the work done by American generic drug manufacturers—and we have much reason for optimism about the future, too.
As the President mentioned last night, his administration has already seen historic levels of progress toward making American healthcare, and prescription drugs in particular, a more competitive and transparent market.
HHS’s Deputy Secretary, Eric Hargan, spoke to all of you about a year ago at last year’s conference. It is remarkable to look back at the progress that has been made toward our shared goals since then.
Several months after the Deputy Secretary was here, President Trump released his blueprint for reducing prescription drug prices and out-of-pocket costs.
Since then, I believe we’ve seen as much active policy work to promote the development and adoption of low-cost generic drugs as we’ve seen in any other period since the Hatch-Waxman legislation in the 1980s.
You have been a big part of that work.
Many of you have heeded the President’s call to become more engaged in the policy process, and are frequent visitors to the department. Thank you for your continued suggestions.
The President’s blueprint laid out four strategies: boosting competition, improving negotiation, creating incentives for lower list prices, and reducing patient out-of-pocket costs.
Many of the actions that relate particularly to generic drugs fall into the competition bucket. Competition, after all, is what makes the generic drug market so successful.
But we are thinking beyond just making it as easy as possible for safe generic drugs to reach the market.
We’re also working to ensure that we have a market that rewards competition; where negotiators are incentivized to choose the lowest-cost options—often generics—and where low-cost generic options can translate into low out-of-pocket costs for patients.
The importance of generic competition, in other words, reaches across the entire blueprint—and the same goes for laying the groundwork for biosimilar competition, too.
Building on the success of generics, and creating the same kind of success with biosimilars, will require not just efficient approval to enter the market, but also payment systems that can harness new competition.
So I want to talk about both elements of a successful generic and biosimilars market today: our efforts at the FDA to foster competition through efficient, safe approvals, and our efforts to create the right incentives, and remove any wrong incentives, to support that competition.
I’ll start with the approvals and science side.
The Food and Drug Administration takes its mission as a public health agency extremely seriously—that is how it has earned its reputation as the world’s gold standard.
But working for public health isn’t just about making sure that drugs are safe and effective. It also means working to ensure Americans have access to the drugs they need.
That’s why the FDA thinks seriously about how to promote public health through more competition, which can help drive down costs and promote access.
No one has done a better job of recognizing that goal, developing policies to advance it, and executing on them than Commissioner Scott Gottlieb.
FDA’s record-breaking success in generic drug approvals over the last two years is a testament not just to great leadership, but to hard work at all levels of the agency.
To set a record for the most generic drugs ever approved in Fiscal Year 2017, and then to do it again in FY 2018, is a remarkable achievement.
Incremental improvements throughout the approvals process don’t make the headlines—but the cumulative results do, and those results end up mattering to the bottom line of American patients and taxpayers.
According to the White House Council of Economic Advisers, generic drug approvals from January 2017 through July 2018 had saved $26 billion in drug costs.
Now, efficient approvals means more than just well-run processes—it requires enforcing the rules of the road too.
For instance, we know that some brand drug manufacturers are blocking access to samples that generic manufacturers need, and hiding behind FDA’s rules when they do it.
Last year, FDA began publicly identifying drug companies suspected of engaging in these abusive practices. The agency has received hundreds of inquiries from generic manufacturers about challenges with access to product samples.
We’re glad to shed light on these practices and call out the manufacturers who may be abusing the rules that built our free market for drugs. They’re using laws intended to promote the public health to pad their profits instead.
And we know, in some cases, just how large these profits can be. Using new data published by CMS following the release of the blueprint, researchers found that Medicare and Medicaid spent $12 billion on drugs in 2016 that are on the list of products where manufacturers may be holding back on sample sharing.
Commissioner Gottlieb has a light-hearted name for these antics—“shenanigans”—but they cost the American patient serious money, and we’re going to pursue every avenue to put them to an end.
At the same time that we crack down on abuses by brand-name drug makers, we also want to make sure that manufacturers who do want to spark competition have the most information possible.
The blueprint raised the question of how we can improve the usefulness of the FDA’s Orange Book, which provides information about every drug the agency has approved.
As Commissioner Gottlieb announced last week, the FDA is now determining the best ways to overhaul the Orange Book. The more information we put in there, the better informed market participants are in making their investment decisions. The better informed those decisions, the healthier competition we get.
We’ve also taken new steps to inform and equip manufacturers who want to develop complex generics, a challenging task but an essential one when it comes to holding down costs.
That has included a significant effort to increase the number of product-specific guidances we put out for complex generics.
It has also involved information about particular tools that may be useful for demonstrating the equivalencies of a complex generic, which can be challenging because of their delivery systems and other issues.
Even more challenging than the complex generic market, however, is the biosimilar market—but we’re not going to shrink from the challenge.
Biologic drugs, today, represent almost 40 percent of prescription drug spending.
The challenges are real, but so is the potential for competition and savings.
Imagine doing to 40 percent of the pharmaceutical market just some fraction of what generics have already done to the other 60 percent
We’re setting our sights high. To deliver those kinds of benefits, the goal is and has to be pharmacy-level interchangeability, once the data and science support it.
Only then can we fully harness the power of competition that we’ve seen in the generics market. Interchangeability is the ultimate goal of the Biosimilars Action Plan that Commissioner Gottlieb launched last summer.
But as we work toward interchangeability, a lot of education needs to be done.
One of the four pillars of the biosimilars action plan is to develop effective communications to improve the understanding of biosimilars among patients, clinicians, and payers.
As Commissioner Gottlieb said last month, FDA is looking to improve the Purple Book, the reference work for biosimilars, and examining whether more actions may be necessary to clear up confusion around these drugs.
Unfortunately, there has been some disinformation spread about biosimilars. Without sounding too grand, those trying to hold back biosimilars are, simply, on the wrong side of history.
We know it’s possible to get patients and providers on board with interchangeable options, because we did it in the 1980s and 90s with generics.
We can do the same for biosimilars. At HHS and other federal agencies that may have jurisdiction, we’re determined to make sure some of the major steps toward that goal occur under this administration.
Now, for all the success we’ve seen in generic markets, and hope to see in the market for biosimilars, there are some drugs that are off-patent but for which generic competition isn’t thriving.
We’re concerned about cases where being the only manufacturer can give companies tremendous power to hike prices when they want to, without near-term fear of a competitor.
I want to mention two of the many ways we’re looking to address situations where generic competition has been anemic.
First, FDA is examining how safe importation of drugs without patents or exclusivities could help inject new competition in the event of price spikes that restrict access to medicines.
Second, we’re also looking at another way to leverage competition from abroad, by further harmonizing the work of FDA and our peer nations. While fundamental changes to our generic drug application process would require statutory reforms, FDA and our peers are exploring new potential areas for alignment.
In some cases, the U.S. market for a generic drug may not be big enough to attract a second or third manufacturer to keep prices low, but the combined market of the United States and other wealthy nations certainly would be.
We also know that many low-volume generics aren’t on the market in all of our peer nations, so a harmonization effort could help expand access both at home and abroad.
Now, we could have the most efficient approval process for safe and effective medicines in the world, but it wouldn’t matter if we don’t have a market where competition thrives and lower-cost options are incentivized.
Unfortunately, even as more than 90 percent of prescriptions dispensed today are generic, there’s still room for improvement.
An HHS report last year found that Medicare Part D plans spend $9 billion on brand-name drugs that have a generic alternative.
By our calculations, choosing generics in these situations would mean $3 billion in total savings for Part D, including $1.1 billion in out-of-pocket savings for patients.
Why are American seniors paying billions of dollars for drugs that are more expensive than they need?
In many cases, it’s because of the non-competitive, non-transparent nature of our drug market.
Often, our drug market really isn’t a market at all—there is no other way to describe a system in which products with higher prices regularly beat out products with lower prices.
As all of you know, one of the major distortions in this market is today’s system of rebates.
Higher list prices on brand drugs allow the payment of bigger rebates to middlemen.
The fact that generics may offer lower net cost and lower cost-sharing isn’t always enough to make them competitive.
Today’s rebate system may be the single biggest impediment to broader use of generic drugs—and the lower costs for patients and taxpayers that could result.
That is why, last week, President Trump released a bold proposal to replace today’s rebate system with a system of upfront discounts—delivered directly to patients at the pharmacy counter.
This has the potential to be the biggest change in how American patients’ drugs are priced at the pharmacy counter, ever.
This reform is a priority for President Trump, because he understands how broken today’s system is.
The other day at a White House roundtable, in fact, the President took the time to go into just how crazy it is that we’re sometimes paying for brand name products when a generic is available.
“What’s the difference between the generic and a big-name drug where you pay much more money,” he asked? “Absolutely no difference,” he said.
Did anyone in this room, ever, in their wildest dreams, think a President of the United States would someday explain the benefits of pharmacy-level generic substitution—in the Roosevelt Room of the White House?
The President wants to raise awareness about this because he gets how broken a system must be if it’s protecting higher-priced options. I’ll give you a particularly offensive, recent example.
This January, a drug company introduced an authorized generic version of a common asthma inhaler.
If you want to buy this new generic without insurance, just paying cash, you can expect to pay $35 or less for a month’s supply. That’s the generic’s list price.
Compare that with the list price of the brand name alternative, which is almost $60 a month.
But when the generic hit the market, pharmacies across America got a notification from at least one large middleman that said essentially the following: We won’t cover the generic. If someone comes in with our insurance, you cannot process the generic with their insurance card. We’ll only cover the brand drug.
If you’re wondering just how obscure these backdoor deals are, by the way, I’ll let you know how we found out about this notice: Somebody posted about it on LinkedIn.
That vaunted source of important medical news: LinkedIn!
By one estimate, a quarter of patients will pay more at the pharmacy counter by using their insurance to purchase the brand drug than they would pay if they just paid cash for the new generic.
As all of you know, the reason that the drug plan pushes the brand drug is because the brand drug offers a kickback.
That’s how broken our system is: When a new option comes onto the market, instead of pharmacies being told, “Hey, there’s an affordable new option, you should tell your patients about it,” the insurer tells your pharmacist, “We’ll only cover the expensive incumbent option.”
Patients are none the wiser unless their pharmacist tells them otherwise—and until we replace this broken kickback system with upfront discounts.
But even today, there are places where transparency can allow patients to know when they should get a generic alternative rather than a brand drug.
Last fall, the President signed legislation banning pharmacy gag clauses, which prevented some pharmacists from telling patients when they could get their drug more cheaply by paying cash than by using your insurance—exactly the circumstance I just described.
At the same time, we will use every payment lever at our disposal to create a robust generic and biosimilars market.
That includes our proposal around more rational payments in Medicare Part B, and, most recently, asking pointed questions about how to improve the brand and generic tiers in Part D to further increase competition.
Thanks to you, we’re hearing that nontransparent rebates are driving generic drugs onto brand tiers, which has the potential to confuse seniors and increase their out-of-pocket costs.
As we move toward greater transparency, the winners are going to be the players who compete on price, rather than trying to game the system.
Conclusion
Of course, we know that a truly transparent drug market, just like a successful market for biosimilars or a competitive market for healthcare services generally, isn’t right around the corner.
But I think the experience and achievements of many of you in this room should give us plenty of reason for optimism.
For all of the success represented by the American generic drug market, it can be easy to forget just how significant an achievement it is.
We almost take it for granted today that what were once breakthrough medicines can now be purchased for pennies on the dollar.
Any time someone tells you drug pricing is helplessly broken, show them the plain facts about how generic competition has driven down prices for many drugs.
Any time someone tells you that Americans pay inflated pharmaceutical prices, ask them who pays more for generic drugs: us or our wealthy European peers. The answer may surprise them.
Any time someone tells you healthcare is too complex a product to have real market competition, ask them if making a modern pharmaceutical product isn’t already pretty complex—and explain how the American generic drug industry now does it at incredibly reasonable prices.
So, that is my closing message to the American generic drug industry: Thank you for showing us what is possible.
Thank you for proving the doubters wrong and showing that competition in healthcare can work.
Now, join with us as we move forward to bring your experiences and your successes to the rest of American healthcare.
Thank you for having me here today.
