Harvard Paper: CMS Coding, Other Factors at Fault for Tepid Biosimilar Savings

A new white paper on the pricing effects of biosimilar competition notes structural “frictions” that reduce potential savings from these lower-cost products and recommends changes in product coding, patent exclusivities, and antitrust enforcement in order to improve competitive dynamics and lower health care costs.

“The fact that a number of biosimilars are approved and do not enter the market, alongside the muted price responses, highlight the frictions affecting the development of competitive markets for biological products after loss of market exclusivity,” write the authors of the paper.

They contend that the current high level of difficulty for biosimilar products to achieve interchangeability status with originator products, the payment structure in the Medicare Part B program for biologics, aggressive industry behavior toward patenting on biologics, and private payer coverage policies for biologics “all contribute to sluggishness in the evolution of biosimilar competition.”

The investigators included Richard G. Frank, PhD, of the Department of Health Care Policy at Harvard Medical School; Mahnum Shahzad of Harvard University; and William B. Feldman, MD, DPhil, MPH, and Aaron S. Kesselheim., MD, HD, MPH, of the Department of Medicine at Brigham and Women’s Hospital in Boston, Massachusetts. The paper was published by the National Bureau of Economic Research.

Insulation Protects Originators

Biologics “have been largely insulated from price competition,” they wrote. “The top 10 biologics each have cumulative sales of more than $40 billion since launch and have been exclusive sellers for an average of 17 years.”

In the United States, biosimilars have helped to reduce the cost of biologic therapies and supportive products, but on average, the effect has not been dramatic, the authors contend. In the competitive range of 1 to 3 biosimilar entrants to market for a particular drug category, each additional market product results in a price reduction of 5.4 to 7 percentage points, according to the white paper.

Generics, the authors note, have been far more successful in reducing health care costs, largely because they are easier to manufacture than biosimilars and face fewer competitive barriers. Generics now account for 90% of sales in their product category (simple molecule, chemical structure) and have achieved average product discounts of 60% to 90% in their first year of market entry.

The first biosimilar was approved by the FDA and launched in 2015, and since that time, there have been 29 biosimilar approvals. Many approved biosimilars are held up by litigation or settlements between the biosimilar manufacturers and the originator company that delay product entry.

The authors argue that US policy is at odds with the goal of introducing cost competition in the biologics field because CMS, since 2018, has allowed each of these products (originators and biosimilars) to carry its own reimbursement code and price under Part B of Medicare, which they contend “insulates originator biological products from direct ‘head-to-head’ price competition.”

Further, they contend the double standard of approving biosimilars but requiring additional evidence for an interchangeable designation creates doubt in the minds of physicians and patients, leaving open the possibility of meaningful differences between an originator and its biosimilars. This differentiation creates friction in demand for biosimilars and means that by reducing an innovator product price modestly, “an originator may retain more market share than would be the case in small molecule markets with generic competition,” they wrote.

According to a recent study, the prospect of biosimilar competition tends to cause originator manufacturers to raise their prices. Click here for the details.

Reference

Frank RG, Shazad M, Feldman WB, Kesselheim AS. Biosimilar competition: early learning. National Bureau of Economic Research. March 18, 2021. Accessed March 19, 2021. https://www.nber.org/papers/w28460