Lower Drug Prices Will Lead To Higher Drug Costs for Patients

  • by: Robert Goldberg |
  • 04/03/2018
President Trump is readying proposals to reduce what many people pay for their medicines. Many of his critics complain that instead of reducing out of pocket costs, the President should force companies to cut drug prices. But what if lower drug prices cause people to pay more?  

This is exactly what’s happening when biosimilars -- ‘generic’ versions of biological medicines such as immunotherapy, vacccines, recombinant proteins –hit the market.   

Biologics are used to treat a wide range of diseases, especially cancer and autoimmune conditions. They are effective medicines that cost tens of thousands a year.  And increasingly insurance companies and pharmacy benefit management (PBM) companies such as Express Scripts and CVS (which will both merge with health insurers) are charging people a percentage of the retail price of these drugs, which can amount to thousands of dollars a year.

Both Express Scripts and CVS have asserted replacing biologics with biosimilars would allow them to reduce out of pocket costs. 

Last year, Express Scripts CEO Tim Wentworth said, biosimilars “can help mitigate the impact of high-cost drugs and support broader access as more affordable alternatives for patients.”  Similarly, CVS stated that using biosimilars will make” prescription drugs more 
more affordable and accessible for our patients and clients.”

Last year a study from health consulting firm Avalere found that 81 percent of plans report they are covering a biosimilar product.  Nearly all companies said that the lower cost of biosimilars spurred that decision.  So far so good.  

But biosimilars use has lagged. For example, Inflectra and Renflexis two biosimilars of Remicade, a biologic used to treat people with rheumatoid arthritis, Crohn's disease and ulcerative colitis, were launched in 2016 and 2017 at a lower price than Remicade.  The average price of both products declined further in 2018.  Yet Remicade’s selling price has increased 6-9 percent during that time and the product actually maintained market share. 

Indeed, a recent Drugchannels blog dryly notes, “Remicade benefited from favorable payer coverage. Investment research firm Sanford C. Bernstein & Co. studied the top 40 commercial formularies. It found that for 36% of covered lives analyzed, Inflectra is either not covered or providers are required to use Remicade first. Inflectra was preferred over Remicade for only 2% of the covered lives.”  (The biosimilar imbalance is even greater in Medicare Part D plans where 90 percent of Medicare Part D plans do not cover Inflectra or Renflexis.) 

PBMs and insurers are, in fact, choosing the cover drugs with the lowest net price for them. Most of that time, price ‘cuts’ materialize the form of cash rebates and other fees PBMs drug companies fork over in exchange for getting plans to cover their products. 

Even cutting prices doesn’t matter.  Inflectra launched at a 15 percent lower price than Remicade.  Renflexis launched at 25 percent and Pfizer counter by cutting Inflectra’s price by 35 percent.  Doctors don’t like switching biologics so most of the people using biosimilars are likely to be new patients.  But rather than letting products compete on price, PBMs used the competition to extract even bigger rebates in exchange for giving Remicade an even more favorable position relative do biosimilars.  Remicade’s list price increased but the net price to PBMs actually fell:  Nearly 90 percent of the price hike went to pay rebates. 

PBMs correctly point out that as a result of the competition, average prices and price increases have come down.  But they haven’t been used to lower out of pocket costs for biologics.  Remicade sales are about $5 billion a year and generate more rebates than most other medicines.  Instead, health plans, employers, and PBMs have maximized revenue from the biosimilar-biologic spread by making many patients wait longer or pay more for medicines other than Remicade. 

For example, many PBMs and health plans require patients to pay the same out of pocket cost or more for a biosimilar as they do for Remicade. Additionally, many plans require patients have to try the rebate rich drug before getting access to a medicine that may be less expensive or more effective.  And incredibly, often some plans don’t cover biosimilars at all depending upon the deal they cut.  Express Scripts covers biosimilars with the same out of pocket share as Remicade. CVS and United Health/Optum don’t cover Inflectra or Renflexis at all. 

Hopefully, the administration will eliminate barriers to affordable access to the medicines that work best for each individual.  Requiring that rebates eliminate out of pocket costs is a start. Many people will respond well to biosimilars.  That frees up money for people who need different medicines.  Combining net price competition with delivering the right treatment to each patient will increase well-being and save money.  For now, lower drug prices mean higher drug costs for patients. More biosimilars will generate more rebate dollars, not better access or better care.  

Center for Medicine in the Public Interest is a nonprofit, non-partisan organization promoting innovative solutions that advance medical progress, reduce health disparities, extend life and make health care more affordable, preventive and patient-centered. CMPI also provides the public, policymakers and the media a reliable source of independent scientific analysis on issues ranging from personalized medicine, food and drug safety, health care reform and comparative effectiveness.

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