Regeneron wasn’t paying ‘kickbacks.’ It was helping people pay egregious Medicare copays

Last Wednesday, the Department of Justice filed suit against Regeneron for paying ” tens of millions of dollars in kickbacks” through a foundation that helps patients cover copays associated with Eylea, its macular degeneration drug. Whether or not Regeneron broke the law, the suit illuminates the stupidity, cruelty, and counterproductivity of Medicare’s insistence that patients feel financial pain in order to receive medically necessary therapies.

Let’s start with what Regeneron is accused of doing, because the term kickbacks conjures up notions of shady, back-room corruption. Was Regeneron paying doctors on the sly to prescribe Eylea over the competition? No. Was it paying doctors to prescribe Eylea for patients who didn’t need it? No. Was Regeneron delivering bags of cash to Medicare patients? Wrong again. Sending them to fancy Caribbean resorts to get treatments and sticking Medicare with the tab from the swim-up pool bar? Still no.

Here’s what Regeneron did: It donated money to a nonprofit patient assistance foundation — a disappointingly necessary and common practice — so the foundation could help patients afford their copays on a medically necessary treatment that staves off blindness. Regeneron was, essentially and entirely, simply paying Medicare.

For patients with private insurance, drug companies provide copay assistance directly. Usually this assistance is in the form of a coupon or charge card designed specifically to reduce the patient’s out-of-pocket costs to something manageable. That practice is legal, though it’s unfortunate that our gap-riddled insurance system makes it necessary. But Medicare, which provides insurance for people over 65, doesn’t allow this kind of copay assistance. Instead, it requires that a charity serve as a go-between, a fig-leaf of bureaucracy. So Regeneron donated money to a charity so it could help patients pay Medicare’s egregiously high out-of-pocket costs.

The alleged lawbreaking here is that Regeneron provided enough cash to the foundation only to cover the total copays associated with Eylea prescriptions — it did not provide enough to also cover the copays for a competing drug, Lucentis, made by Genentech. That is how Regeneron falls afoul of the Anti-Kickback Statute, and that’s where it allegedly stepped over the line.

Put aside for a minute that physicians prescribed Eylea for these patients. Or that using Eylea instead of Lucentis or off-label, compounded Avastin (a chemotherapy drug) typically results in fewer visits to the ophthalmologist and fewer injections of drug into the eye. Or that for patients with severe diabetic macular edema, another degenerative condition that leads to blindness, an NIH-sponsored trial demonstrated that Eylea is more effective than Lucentis and Avastin (let alone that compounding Avastin risks introducing an infection into a patient’s eye).

Instead, let’s focus on the copays themselves. In announcing the complaint, the U.S. attorney’s office in Massachusetts says that Medicare copays “encourage market forces to serve as a check on health care costs.” That sounds rational enough. But consider that Eylea is hardly the kind of treatment any patient would want unless they really needed it (it’s injected in the eye!). And consider that Medicare would charge a copay for a medicine even when there are no alternative treatments.

So what is this copay “encouraging” or nudging patients to do? The answer is simple: It makes someone think, “Do I really need this treatment?” The copay is there so you don’t “overuse” services your insurer (in this case Medicare) has to pay for.

Any time a patient avoids a drug because she or he cannot afford Medicare’s required copayment, Medicare has failed to insure that patient. The U.S. government has failed that patient, charging taxes for empty promises.

Congress knows that Medicare charges excessive out-of-pocket costs. Members of Congress have generated many bills calling for lowering those costs. But until those reforms are instituted, it’s high time someone challenged Medicare’s heartless and senseless anti-kickback rules. On the heels of the Regeneron’s lawsuit, Pfizer did just that, filing a lawsuit against the Trump administration on Friday arguing that Medicare’s policy is unconstitutional.

I’ll add that it’s just plain dumb.

We should all back legislation that caps or ideally eliminates such cruel cost-sharing. Insurance premiums are how we all share in the cost of caring for the few of us who need medical treatment today. Cost-sharing really means less insurance, which actually means less sharing.

Until we eliminate out-of-pocket costs, we should not only allow drug companies to cover those costs, we should encourage them to do it. Regeneron should be able to cover the Eylea copays; Genentech can cover the Lucentis copays. Patients should get whatever drug their doctor says is best for them without having to worry about which one is unaffordable.

Market forces are still at play — companies are incentivized to have the best drug so more doctors will want to prescribe it. When two drugs are similar enough, insurance plans play them off one another to get rebates and require patients to at least try the less expensive drug first. There are many cases when that is medically acceptable. When it isn’t, it is not conscionable in America to reserve the better drug only for those who can pay. For many patients, Eylea is indeed the best drug. To make it inaccessible to poorer patients because they can’t afford the copay is to condemn them to get more injections in their eyes and/or to progress towards blindness. Regeneron’s so-called kickbacks are just leveling the playing field between rich and poor.

Not everyone sees it that way. Sen. Elizabeth Warren (D-Mass.) has argued that patient assistance programs only “mask” drug prices that are too high. Warren says companies should instead make their drugs affordable by lowering prices. But a patient’s $6,000 deductible is set by insurance and stays the same whether a drug costs $20,000 or $10,000. Warren’s argument betrays a profound ignorance of the cost of biomedical innovation and of the rot endemic to America’s insurance system.

Factoring in all the money-losing drug development companies, the drug industry’s overall profit margins are 10% to 12%. Lowering all drug costs by even 30% would decimate the industry. Yet cutting Eylea’s price by 30% would not reduce a patient’s deductible and therefore would make it no more affordable. Warren knows better. She is pandering to a public taught to hate the drug industry and looking for easy solutions.

The easy solution is to make America’s insurance function like actual insurance by reducing out-of-pocket costs so patients can afford drugs their physicians prescribe.

As for making sure that America doesn’t overpay, consider that drugs go generic (or in Eylea’s case, biosimilar). As manufactured goods, when their patents expire, competitors step in and compete on price. No other aspect of health care has this built-in price control. The end of a drug’s patent-protected branded period is akin to the end of a mortgage; America takes ownership of a public good. That’s the price control we’ve long relied on since the Hatch-Waxman Act of 1984. That’s the price control we should continue to turn to so America can continue building its armamentarium of inexpensive, generic drugs that serve us forever.

Until we eliminate out-of-pocket costs, if helping patients afford medically necessary and FDA-approved drugs is a kickback, so be it. It only reflects well on the word. But what Medicare is doing to patients is kicking them in the face.

Peter Kolchinsky is a biotechnology investor and scientist, managing partner of RA Capital Management, L.P., and author of “The Great American Drug Deal” (Evelexa Press, 2020). At the time of publication, neither the author nor RA Capital have investments or other financial relationships with Eylea or Regeneron.