The Obama administration is proposing a Medicare payment rule that would have the effect of clamping price controls on biosimilar drugs, extending destructive pricing policies to a potentially vibrant 21st century life sciences industry.
The Centers for Medicare and Medicaid Services (CMS) has proposed a rule that would guide how Medicare pays for a new class of medicines used in physicians’ offices and hospitals. The new medicines are designed to imitate the therapeutic effect of biologics—medicines created in the laboratory but derived from living organisms that lock into the body’s own biological processes to treat cancer, diabetes, rheumatoid arthritis, and other diseases
But biologics are not like small-molecule chemical drugs, which can be stamped out in exact generic copies. Once the innovator company’s patent expires, a biosimilar developer can create an imitator drug to serve the same function but, because it is produced in living cells, it can never be an exact copy of the original.
These biologic drugs aren’t called generics but “biosimilars” and must be approved by the Food and Drug Administration (FDA) according to a special pathway established by Congress.
Biosimilars have reduced healthcare costs in some European countries by creating competitive pricing. Payers, patients, and policymakers are expecting a similar impact in the United States. Some models have predicted price reductions of 20 to 30% in the United States. A RAND Corporation analysis estimates that introducing competing “biosimilar” drugs used to treat illnesses such as cancer and rheumatoid arthritis could reduce spending on biologics in the United States by $44 billion over the next decade.
But instead of allowing the companies to price their products based upon the value that these medicines bring to patients, CMS’ proposed rule would control the price for all of the biosimilar drugs in a particular class. Specifically, CMS is proposing to lump all of the biosimilars of the same reference biologic into one category to pay a blended rate that would tether all biosimilars together. This policy proposal would ignore biosimilars’ unique differences and value, and ignore the differing costs of development, production, and handling.