Americans rightfully expect Congress to address the ever-increasing prices of brand-name prescription drugs. But the wholesale policy changes now under rushed consideration in Congress will undermine the only proven solution to this long-standing problem: competition from Food and Drug Administration-approved generic and biosimilar medicines.
Generic and biosimilar medicines generated $2 trillion in savings to the U.S. health care system over the last decade. Yet proposals in the reconciliation package will jeopardize the development of these less-expensive drugs, harming Americans rather than helping them.
Generics and biosimilars account for 90% of the prescriptions filled in the U.S. but only 18% of the total spending on prescription drugs. The average copay for a generic prescription filled in 2020 was $6.61 compared to $55.82 for brand-name drugs. According to the FDA, prices fall as generics enter the market — by an average of 39% for the first generic and by nearly 80% when four or more generics enter the market. Just six years in, the growing biosimilars market shows average cost savings of 30% compared to their brand-name biologics, while also forcing the brands to reduce their prices.
The competition these medicines provide in the pharmaceutical marketplace has been both a reliable lever that lowers drug costs and an engine that drives pharmaceutical innovation for three-plus decades.
Policy and market dynamics currently reward makers of generic and biosimilar drugs who take on the costs and risks to be the first competitor of a brand-name drug on the market. These investments are substantial. The development of a biosimilar can cost $100 million to $250 million and it takes up to 10 years to achieve FDA approval. Biosimilar developers also incur significant time and legal costs to challenge often meritless patents obtained solely to thwart competition.
Under proposals now being bandied about in Congress, it would be possible for a biosimilar developer to invest hundreds of millions of dollars in planning, development, and work with FDA over the course of eight to 10 years and then, right before launch, see the price of the brand biologic cut by 60% by the Department of Health and Human Services. That would eliminate some, if not most, of the investment made by developers to make more affordable medicines available to patients. Given the uncertainty around what drugs the government could decide are subject to price negotiation, biosimilar development could be forestalled for dozens of medicines. The overall effect would be more branded drugs maintaining their monopolies for longer.
Even for the drugs being negotiated now, the bill exchanges proven cost reduction due to competition from generics and biosimilars for potential short-term savings via government price setting. To be blunt, generics and biosimilars offer greater savings potential than this short-sighted policy change.
To make matters worse, policymakers are also seeking to apply to brands, and misguidedly to generics, in the Medicare Part D program and commercial plans a penalty if their prices rise faster than the rate of inflation. The so-called inflation-based rebate disproportionately harms the low-cost generic drugs on which seniors rely because it applies a penalty based on the percentage that a price increase exceeds inflation; meaning that a 1 cent increase on a 20 cent pill could trigger a penalty for the generic manufacturer. And manufacturers could also be penalized because of changes in downstream purchaser behavior, even if the manufacturer does not increase the price.
The imposition of these penalties in Medicare Part D and the commercial market would further compound a mistake Congress made when it applied inflation penalties to generic drugs in Medicaid. This makes it more difficult for older generics with very low prices, which may be the only option available for patients, to stay on the market. It would thus increase the likelihood of drug shortages for seniors and the nation’s most vulnerable patients, a phenomenon recognized by FDA’s drug shortage task force and reports from outside experts. It represents another challenge to the long-term sustainability of an industry that consistently delivers lower costs and generates great value in health care.
Congress is right to try to meet the expectations of a nation concerned about the high prices of brand-name drugs. That’s its job. But policies to reform drug pricing should be focused on ensuring that Americans have access to more-affordable medicines by eliminating barriers and improving incentives for competition.