Debate Over Whether Biologics Constitute Natural Monopolies Continues

“We wish biosimilar competition would efficiently lower biologics prices to the socially optimal level of marginal economic cost,” wrote Bach and coauthors. “But, in this case, the ideological preference for competition needs to be put aside for a more effective, efficient, and economically justified approach of regulating biologics as natural monopolies.”
Allison Inserro
August 01, 2019
In the latest back-and-forth over whether biologics are natural monopolies, a debate playing out on the Health Affairs blog has another entry this week.

Peter B. Bach, MD, a well-known critic of high drug prices, along with Jennifer A. Ohn, MPH, Preston Atteberry, MD, and Mark Trusheim, MSc, first wrote in April that biosimilar competition is an economically inefficient way to achieve the goal of lower prices; the biosimilar environment is different than the one that exists in the generic marketplace for small-molecule drugs. These authors said, instead, that biosimilars are natural monopolies and as such need price regulation in order for them to succeed and for prices to come down.

That spurred a response from 2 economists from the free-market oriented American Enterprise Institute, Alex Brill, MA, and Benedic Ippolito, PhD, who said that it is too early to declare the market a failure, saying that physicians, payers, and providers need more time to acclimate. They also took issue with part of the analysis used to make the case for price regulation.

Part of the issue between the 2 viewpoints appears to be how each side is measuring success.

In their response this week, Bach and company said their view of success includes whether the price of the original biologic also falls post-exclusivity, not just whether the price of the biosimilar falls. They also said what the AEI economists view as signs of a government failure (regulatory requirements, delayed competition, and moderate price drops) are an inescapable part of biologic drug development, and also a part of what contributes to high research and development expense.

Brill and Ippolito did find an error in that the y-axis in 1 chart regarding Neupogen in the original post should have been labeled wholesale acquisition cost; the correct data to show would have been average sales price (ASP), the authors said, as the ASP is a more accurate reflection of Neupogen’s market price.

The ASP under Medicare Part B is calculated by CMS from pricing data the manufacturer reports for each type of drug package and volume, accounting for rebates, discounts, and chargebacks, across all sales channels. The drug is also reimbursed through Part D.

“We wish biosimilar competition would efficiently lower biologics prices to the socially optimal level of marginal economic cost,” wrote Bach and coauthors. “But, in this case, the ideological preference for competition needs to be put aside for a more effective, efficient, and economically justified approach of regulating biologics as natural monopolies.”

 

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