FDA, Pricing

Stepping into the pricing debate, FDA chief Scott Gottlieb proposes new reimbursement idea for antibiotics

Scott Gottlieb

In an attempt to make good on its promise to tackle the superbug problem, the FDA trotted out a new idea today that it hopes will address the reimbursement catch-22 inherent in the industry. Their idea? Treat drugs like software, having hospitals buy licenses to antibiotics instead of reimbursing on a per-use basis.

Let’s set aside, for the moment, that pricing is typically not a topic the FDA likes to weigh in on. After all, drug pricing is not under FDA’s direct purview and would require some inter-agency collaboration with the likes of CMS. But worries around the pace of innovation in antibiotics and other antimicrobial drugs appear to be driving the FDA to action.

Brent Ahrens

In the agency’s statement Tuesday, FDA commissioner Scott Gottlieb argued that the current drug reimbursement model isn’t conducive to antibiotics R&D. The more antibiotics a physician prescribes, the more money the drugmaker earns. But that’s a problem considering a growing effort to scale back the use of antimicrobials.

“When such drugs become available, we try to use them sparingly, lest pathogens become over-exposed to a new mechanism of attack and develop resistance to it,” Gottlieb wrote. “So, providers have imposed understandable restrictions on the use of such drugs. While this represents responsible stewardship, it also means that a novel antibiotic may have a very limited market. If product developers know that they will not be able to recoup their investments, there may be reduced incentive to invest the significant money needed to discover and develop such a drug.”

Brent Ahrens, a Canaan partner with a long history backing antibiotics makers like Iterum and Durata, said so-called “effective stewardship” of these drugs is seriously affecting ROI in this field.

“If one were to look at the launches of the last several antibiotics — or some of the acquisitions done — very few have done well over the past 15 years,” Ahrens said. “All of that is related to stewardship and the price point. The incentive for us to do this just falls apart.”

Jeff Stein

Under the FDA’s new idea for reimbursement, hospitals and other care facilities could be reimbursed for licenses to antimicrobials rather than a per-use basis. Within this model, the hospital systems would pay a fixed licensing fee for access to the drug, which would offer them the right to use a certain number of annual doses.

“This is similar to the way that software often gets reimbursed, where institutions pay a licensing fee for a fixed number of installations,” Gottlieb’s statement reads. “We have been speaking with our counterparts at CMS as to whether such an approach is feasible, whether it can be formulated as a demonstration, and as a demonstration, whether it would have the intended public health benefits.”

The FDA hopes that such a model would provide a predictable return on investment and revenue stream for drugmakers. It would also put the institutions fully in charge of stewardship of the meds.

Jeff Stein, the CEO and president of clinical-stage antibiotics maker Cidara, tells me it’s encouraging to see the FDA tackle the problem, but he does wonder if the idea would work for hospitals.

“The question is — would hospitals embrace it?” Stein said. “Will they be willing to pay for a drug upfront for a limited number of patients?”

Ahrens said he’s also skeptical about how that would play out.

“Hospitals are reluctant to pay for anything — understandably so — and it’s challenging getting new products in a hospital,” Ahrens said. Paying a larger sum upfront — when there are low-cost options already available — may be a tough sell to acute care facilities.

Still, both Ahrens and Stein are happy to see the FDA take on the reimbursement challenge, as both consider it the biggest issue facing the space. Incentive programs like QIDP and others stemming from the GAIN act have helped to fuel innovation in the industry over the past few years, but if companies — and investors — don’t get paid for their efforts, the space could slow its efforts, they said.

“I’d hate to see a cyclical effect,” Ahrens said. “But without better reimbursement, there just won’t be a lot of new development.”

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Research Scientist - Immunology
Recursion Pharmaceuticals Salt Lake City, UT
Director of Operations
Atlas Venture Cambridge, MA

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