Could Biosimilars Help Rein in Prescription Drug Costs?

Pharmacists and client looking at prices

Biological drugs, or biologics, are innovative therapies for people with debilitating and life-threatening diseases. But these drugs are expensive, putting them out of reach for many people whose health depends on them.

In this Q&A, AIR’s Thiyagu Rajakannan, senior researcher and lead for Drug Coverage and Payment Practice in the Health Division at AIR, explains how lower-cost versions of these drugs and promising market, regulatory, and policy developments could ease the financial burden. He is co-author of a recent brief on this topic.

Q. We hear a lot about high and rising costs of prescription drugs. What types of medications are most affected by this?

Biologics are novel, protein-based medications that offer therapeutic advantages over conventional drugs, but they are among the highest-cost drugs on the market. Biologic therapies have helped people manage chronic diseases like multiple sclerosis, diabetes, rheumatoid arthritis, and Crohn’s disease.

Biosimilars are “therapeutic equivalent” versions of biologics that have no clinically meaningful differences from corresponding biologics approved by the U.S. Food and Drug Administration (FDA). Some biosimilars are interchangeable with corresponding biologics, which means that pharmacists can substitute or switch them for a brand-name product without intervention by a prescribing health care provider.

Rajakannan: Americans spend more on prescription drugs—about $1,300 a year, on average, for insured and uninsured people—than anyone else in the world. Biologics push these costs much higher. Biological drugs are very innovative treatment options, which help treat very severe diseases like cancer, endocrine disorders, and digestive and blood diseases. For example, patients with blood diseases tend to spend almost $7,000 per year, at a minimum, for biologic medications, some of which may be covered by health insurance.

With advancements in biologic research and development, biologics have become an indispensable tool in modern medicine. At the same time, innovative products like biologics are always costly because they are only available from the original product developer until the patent expires, typically 20 years after patent application, and fewer years after FDA approval.

Q. How do rising costs affect patients and, more broadly, population health and health equity?

Rajakannan: High drug prices are forcing many Americans to make difficult choices, such as deciding between buying the medicines they need and paying for food or other bills.

There are three major concepts in health care delivery:

  1. Access. Every American should have access to health care. However, the U.S. has a large and growing uninsured population, which, by 2028, is expected to hit 37.2 million, about 10.6 percent of the population. Without access to needed medicines, people face serious health consequences. For example, without an adequate supply of insulin—a biologic drug—a person with diabetes can develop life-threatening complications that require hospitalization.
  1. Affordability. The consequences for people who cannot afford medicines, particularly when high-cost drugs are their only option, can be just as devastating. For example, someone with a heart condition or high blood pressure can be at greater risk of an early heart attack, heart failure, or stroke if they cannot afford their medications.
  1. Equity or disparity in outcomes. There remain unacceptable inequities in health care access and outcomes by race, ethnicity, socioeconomic status, and other dimensions.

Q. What promising market, regulatory, and policy developments could lower drug costs?

Rajakannan: The FDA has approved 40 biosimilars through a new regulatory pathway enacted in 2010, the Biologics Price Competition and Innovation Act. An additional 30 to 40 biosimilars are expected to be approved by 2025 or 2030. Four of the drugs the FDA has already approved are interchangeable biosimilars. Depending on state regulations, this means pharmacists can substitute or switch them for a brand-name product without consulting the prescriber. This aims to reduce the cost and administrative burden of filling prescriptions.

The current federal administration is trying to improve access to medicines, particularly through expansion of the Affordable Care Act, as well as by lowering costs for Medicare Part B, which covers prescription drugs administered in hospitals or outpatient settings, and Medicare Part D, which covers prescription drugs from pharmacies. Both Part B and Part D expenditures on biologics are expected to rise because many of these drugs treat diseases prevalent in older adults, a population that is rising rapidly as baby boomers age. In 2022, the U.S. Office of Inspector General in the Department of Health and Human Services noted the potential for biosimilars to reduce costs for Medicare and issued two recommendations:

  1. Medicare should encourage Part D plan sponsors to increase access to and use of biosimilars.
  1. Medicare should monitor biosimilar coverage in the formularies that Part D plan sponsors use to manage drug utilization. Formularies are lists of prescription drugs covered.

Q. How does the Inflation Reduction Act of 2022 aim to address prescription drug prices?

Rajakannan: There are three major provisions in the Inflation Reduction Act to lower drug costs and promote biosimilars. First, Medicare is now able to negotiate lower prices for five drugs, including biologics, in 2023 and 50 drugs by 2030. Biologics will be eligible for price negotiation on a faster timeline—13 years after FDA approval, rather than the previous 20-year timeline—and only if a biosimilar is not likely to be both licensed and marketed within two years of this eligibility timeline.

It’s the responsibility of pharmaceutical manufacturers, physicians and other prescribers, and pharmacists to educate patients and give them confidence to use biosimilars as an alternative to high-cost drugs.

Second, the Inflation Reduction Act changed a rule regarding Part B reimbursement that used to provide a financial incentive for hospitals to prescribe higher-cost drugs, particularly biologics. Elimination of this incentive will reduce drug costs and make less expensive biosimilars more attractive.

Third, there will be new evaluation models for Medicare and other federal programs to identify methods to increase biosimilar adoption through value-based care initiatives. This is expected to reduce drug prices and out-of-pocket spending on cutting-edge therapeutics for patients.

Q. What will it take to achieve broader adoption of biosimilars?

Rajakannan: It’s important to promote generic drugs, including biosimilars. Generic medications and biosimilars work just as well as more expensive brand-name medicines. It’s the responsibility of pharmaceutical manufacturers, physicians and other prescribers, and pharmacists to educate patients and give them confidence to use biosimilars as an alternative to high-cost drugs.