More Competition Will Improve Drug Affordability

More Competition Will Improve Drug Affordability

Making medicines more affordable for patients promises to be a top policy priority for Congress when it returns from its August recess. Achieving this goal does not require new, elaborate, government programs or regulations. It requires reforms that will empower biosimilars to more effectively compete against originator biologics.

To see why a little background is needed.

Consider that the growth in spending on drugs that includes all discounts and rebates grew 3.5% annually between 2009 and 2018 according to IQVIA’s annual review of spending on medicines. Total economic growth (including inflation) was 4.0% annually over this same time period. Therefore, relative to the size of the economy, spending on drugs has actually become more affordable over the last decade.

The same is true relative to overall health care expenditures. According to the national health expenditure data maintained by the Centers for Medicare and Medicaid Services, between 2009 and 2017 (the latest data available) spending on prescription drugs grew 3.5% annually compared to 4.3% annual growth in national health expenditures.

Just as important, when most patients receive a prescription, it is affordable. Consider that 90% of all prescriptions dispensed in 2018 were generic medicines. According to the Association for Accessible Medicines, 93% of these medicines were filled at a price of $20 or less.

These trends illustrate that drug unaffordability is not a problem for most patients; it is a serious problem for a small minority of patients. This is typical for health care spending where a small minority of patients are responsible for a majority of total health care spending.

Often, the select patient populations facing unaffordable medicines are prescribed innovative originator biologics that have substantially improved the quality of health care for patients facing diseases like cancer and arthritis. Biologic drugs are medicines manufactured in or synthesized from, biological sources.

Unlike traditional medicines, a robust competitive market for biologics has not yet developed. But, it should have. A paper I recently authored for the Pacific Research Institute demonstrates that large potential savings on medicines could be obtained if a competitive biologics market were fostered.

Biologic competition is not lackluster because viable competitors do not exist. There are many competitors to originator biologics, known as biosimilars. A biosimilar is a biologic drug that has no “clinically meaningful difference” in safety, purity, and effectiveness relative to its reference originator biologic. Just like generic medicines, biosimilars sell at substantial price discounts relative to their originator biologics.

Despite their savings potential, a robust market for biosimilars has been slow to develop in the U.S. While a total of 60 biosimilar applications have been approved in Europe, only 19 biosimilars have been approved in the U.S. Of these, only 7 biosimilars are currently available to patients.

Based on my analysis of the most recent price and volume data, those few biosimilars that are available to patients still created $253.8 million in annual savings. But, the savings potential for the U.S. health care system is much more impressive.

For just the originator biologics that currently face an approved biosimilar competitor, my research found that the potential health care sector savings could be $2.5 billion annually if biosimilars were able to gain a 25% market share. Should biosimilars gain a 50% market share, the annual health care savings would be $4.8 billion; a 75% market share would create $7.2 billion in savings. These are not one-time savings either. They would be reaped year-in and year-out, and would likely grow over time as more competitors would be incented to enter the market.

It is entirely reasonable to expect biosimilars to obtain these market share levels. After all, 90% of traditional medicines sold in the U.S. are generics. Further, biosimilars have reached these market share benchmarks in Europe – the biosimilar version of Infliximab (Inflectra) represents 80% of all sales in the U.K. for instance. Further, sales of one biosimilar in the U.S. (Zarxio) now accounts for nearly 55% of all sales relative to its originator biologic.

These examples demonstrate that low-cost competitive drugs can successfully compete against the original innovative medicine and generate large savings for patients and the U.S. health care system.

Unfortunately, current market practices and policy inefficiencies tilt the competitive landscape in favor of originator biologics. For example, payers typically reimburse biologics based on the price of the medicine. Therefore, providers lose money if they prescribe a lower-cost biosimilar. Similarly, insurance plans often make the more expensive biologic medicine the preferred medicine for patients, which has the effect of discouraging the use of the less expensive biosimilar medicine. Anti-competitive rebating practices also create contracting rigidities that discriminate against less expensive biosimilar products. Finally, regulatory uncertainty and misinformation regarding biosimilars’ efficacy and interchangeability are obstacles that discourage providers from prescribing these medicines.

Policies that directly alleviate these market and regulatory barriers will meaningfully improve the competitive environment for biosimilar medicines. And, a more competitive biosimilars market will directly reduce the costs of some of the most expensive medicines while also safeguarding the innovation that is essential for creating tomorrow’s innovative cures.

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Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.