News & Updates - CBRT Asks State Leaders To Investigate Rebate Wall Practice

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December 17, 2019

The Honorable Jim Wood, DDS
Assemblymember, 2nd District
State Capitol
P.O. Box 942849
Sacramento, CA 94249-0002


Dear Assemblymember Wood,

Innovation is the driver of the California economy. From high-tech to bio-tech, our state is making the investments in technological and medical advancements that will define the 21st Century. At the same time, healthcare is the fastest-growing sector of the California economy. A strong economic future is increasingly dependent on the healthcare sector and it is critical that the state and federal government continue to invest in policies that will help business grow jobs and fairly compete in this sector.

Unfortunately, there is a practice currently in place affecting the pharmaceutical market that is stifling innovation and potentially denying patients new and more effective drugs. Certain pharmaceutical companies are gaining an unfair advantage in the healthcare market through contracts often referred to as rebate walls or a rebate trap.

Rebate walls work like this: A drug manufacturer that has established a dominant position in the market, say with a blockbuster drug, provides to payers (pharmacy benefit managers, health insurers and providers) conditional rebates and discounts off the list price for a multi-product bundle of drugs or indications. The drug manufacturer uses the bundled rebate to protect its already established position with the payers.

While the word “rebate” is often synonymous with a benefit, research suggests that these rebate walls could actually be increasing the cost of prescription drugs and dissuading other manufacturers from making investments into new branded and biosimilar drugs since they will not be able to bring them to market.

Rebate walls also take the doctor out of the decision-making process; a patient may not have access to the best, newest and most effective drug because of one company’s monopoly.

Competition is critical in the innovation market. All pharmaceutical manufacturers should have the right to compete in a free and fair market. This not only helps push the innovation envelope, driving new and better treatments, but it also helps bring down costs as all companies compete equally in the marketplace.

Rebate wall contracts have not been widely discussed at either the state or federal level. We strongly encourage you and other leaders in the state pushing for lower drugs costs and better access to care, including those listed on this letter, to take a closer look at this issue in 2020. Additionally, since pharmacy benefit managers (PBMs) play a critical role in the rebate wall discussion, we are hoping the taskforce you helped establish can look into this issue as part of its ongoing research and discussions.

California could one again be a national leader in the healthcare debate should you or other state regulators choose to engage on this important issue. No other state has taken a closer look at the rebate wall practice and the federal government, including Senator Kamala Harris, are just beginning the investigative process.

Thank you in advance for your consideration of this important matter. I am happy to discuss the issue with you or your staff at your earliest convenience.







The Honorable Gavin Newsom, Governor
The Honorable Xavier Becerra, Attorney General
The Honorable Ricardo Lara, Insurance Commissioner
Members, Assembly Health Committee
Ms. Elaine Howle, California State Auditor


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