Ted Okon Talks Gottlieb Nomination for FDA and High Drug Prices

April 1, 2017

Ted Okon, MBA, executive director of the Community Oncology Alliance (COA), discusses what the FDA would look like with Scott Gottlieb, MD, as commissioner, how the fee scheme of pharmacy benefit managers are contributing to rising drug costs, and COA's upcoming conference.

A new administration in the White House necessitates changes, but a familiar face may be returning to the FDA. Scott Gottlieb, MD, a fellow at the American Enterprise Institute, has been nominated to run the FDA. His previous experience with the agency, as deputy commissioner for medical and scientific affairs from 2005 to 2007, is one of the many reasons the Community Oncology Alliance (COA) has strongly endorsed Gottlieb’s nomination.

Gottlieb has extensive ties to the pharmaceutical industry, which has some patient advocates worried, but Ted Okon, MBA, executive director of COA, called those concerns “nonsensical.” He called Gottlieb one of the “most knowledgeable people in this country” about the pharmaceutical industry and he believes that any ties Gottlieb may have had to the industry will not influence him in anyway once he is FDA commissioner.

“He understands the drug industry better than anyone else,” Okon said. “That’s exactly what you want. And he understands some of it from the inside. Why wouldn’t you want that?”

Based on his experience of working with the nominee, and articles that Gottlieb has written, Okon is confident that the FDA under Gottlieb will become more modernized and have less burdensome regulations. This will not sacrifice safety, so drugs can get to the market faster, providing more competition in the market and bringing down the price of drugs.

Gottlieb has written extensively about the distribution system in the United States, Okon pointed out, and is a proponent of increasing transparency around drug list prices and moving back-end rebates to upfront discounts to counteract the increasing gap between a product's net price and the list price.

“The list price has risen because there are so many discounts and rebates—like PBM [pharmacy benefit manager] rebates on Part D drugs in Medicare and 340B discounts on Part B drugs—that what we’re seeing is this growing gap between the list price of the drug and the actual net price less those discounts and rebates,” Okon said.

COA is eyeing another industry mechanism that the group says is contributing to high prices: the direct and indirect remuneration (DIR) fees being levied by PBMs. What has happened recently is that the 3 largest PBMs—CVS Caremark, Express Scripts, and OptumRx—that account for 80% to 85% of all prescription drugs, have set up a system where they charge a percentage of the drug to community oncology practices, Okon said.

Typically, these fees were a fixed dollar amount, but the percentage is more lucrative for PBMs as more and more specialty drugs are now expensive oral medications. Now these fees are increasing from 3% to as high as 11%.

“So the PBMs have a vested interest to basically extort rebates from manufacturers to keep the list prices as high as possible,” Okon said. While he doesn’t condone high pharmaceutical prices, Okon admitted that the manufacturers almost have to keep increasing prices by factoring in the rebates. This is contributing to the rising gap between the list and net price of a drug. Since patients pay off the list price, it costs them more. Once patients are eligible for Medicare, the pricing system pushes them into the donut hole faster, costing the patient more, and then out of the donut hole faster, costing Medicare more.

According to Okon, the way DIR fees are set up, the PBM does “literally nothing” other than send out a bill.

He likened the situation to someone going to the supermarket and paying $100 for groceries. But then, 3 to 6 months later, the supermarket sends an additional bill as part of the fee program. The big difference is that if someone doesn’t like the fee, he or she can shop at a different supermarket next time.

“But the problem is in the PBM world—because it’s so consolidated and you have 3 big players that basically have next to monopolistic control—you have to pay that extortion,” Okon said.

The good news is that more bills are popping up in Congress to address the issue. Congressman Buddy Carter, R-Georgia, has co-sponsored legislation to stop these DIR fees, and he will be speaking at COA’s upcoming Community Oncology Conference, which will be held April 27-28, 2017, in National Harbor, Maryland. Carter will sit on a panel that includes a community oncology practice administrator, one of the top attorneys in the country on pharmacy issues, and a patient.

“It’s going to get the conference off to a really good start about describing from those different perspectives what’s going on in the PBM space,” Okon said.