Posts filed under ‘Generic Drugs’

Woes of a Disjointed Healthcare System

As we all know, the cost of healthcare in the United States is high and growing.  Expenditures surpassed $2.3 trillion in 2008, more than three times the $714 billion spent in 1990, and over eight times the $253 billion spent in 1980. Stemming this growth has become a major policy priority, as the government, employers, and consumers increasingly struggle to keep up with health care costs. (Source: Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group, National Health Care Expenditures Data, January 2010.)

The healthcare industry, patient advocates and governmental bodies are pursuing many solutions.  These include, but are not limited to:

  • Investment in information technology
  • Improving quality and efficiency (e.g., encouraging evidence-based medicine, reducing unnecessary variations in care) – Some experts estimate that up to 30% of health care is unnecessary, emphasizing the need to streamline the health care system and eliminate this needless spending.
  • Adjusting provider compensation (e.g., sharing cost savings)
  • Government regulation (e.g., recent Medicare initiatives to control costs)
  • Encouraging prevention
  • Increasing consumer involvement in purchasing
  • Altering the tax preference for employer-sponsored insurance

One of the strengths of our current healthcare system, as well as one of its weaknesses, is that it is a market-based system.  We have multiple providers competing against each other.  The strength is that competition leads to innovation if not the low cost we might expect.  However, a market-based, competitive system also leads to a system that can make it difficult for providers to work together.  The resulting lack of coordination can have a negative impact on patient care and lost opportunities for reducing costs.

For example, MedSpan has a client that provides patient care in all 50 states.  They considered developing a unique program that could extend the reach of physicians’ care between visits, enhance patient-physician relationships, encourage therapy compliance and afford the opportunity for earlier identification of disease progression.  However, one of the challenges the program faces is that without coverage of the program by all health plans in a geographic region, physicians do not easily know which patients they can refer to the program.

Assume that only a few health plans provided coverage for our client’s program.  A physician would need to 1) determine that a patient would benefit from the program, 2) determine if the patient’s health plan provides coverage for the program and 3) refer the patient to the provider (my client), 4) develop a relationship with the provider and 5) exchange information to monitor progress, thereby ensuring a benefit for the patient and physician.

That’s a lot of work for physicians who, typically, do not have the time available.  This is especially true if only 5 or 10 patients might benefit from the program and only a few might have coverage.  As a result, a potentially beneficial program falls through the cracks due to a disjointed healthcare system.

A system integrated through better information systems would address some of the challenges the above program faces, but not all.  An extreme solution would be a single-payer system.  While facilitating coordination of care, a single payer system would engender a host of other issues.  For example, the innovation that competition generates may diminish.  Therefore, the question to address is how close should we move to a single payer system while maintaining the competitive, free market that is the foundation of the American economy?

That’s an issue we’ll address in a future entry into our blog.


November 14, 2011 at 8:27 AM Leave a comment

Biosimilars and Healthcare Reform

As the next chapter in our series on the implications of healthcare reform for healthcare manufacturers, we will look at biosimilars and bioequivalent drugs. 

As an approach for reducing the cost of care, healthcare reform defined an approval pathway for biosimilars.  Biotechnology drugs will have market exclusivity for 12 years after the branded biotech drug is approved by the Food and Drug Administration.  The subject product would be biosimilar to the reference product if it “is highly similar to the reference product notwithstanding minor differences in clinically inactive components” and if “there are no clinically meaningful differences between the biological product and the reference product in terms of safety, purity, and potency of the product.” Such a determination by the FDA would substitute for a demonstration of the subject product’s efficacy, which would have been established by the reference product.

Biosimilar is different from bioequivalent.  The biosimilar drug’s sponsor can submit information that the FDA would evaluate to determine whether the subject product is “interchangeable” with the reference product (i.e., that the subject product “can be expected to produce the same clinical result as the reference product” and that, “for a biological product that is administered more than once to an individual, the risk in terms of safety or diminished efficacy of alternating or switching between use of the biological product and the reference product is not greater than the risk of using the reference product without such alternation or switch”).  Because current analytical technology is insufficient to establish that two biologics are molecularly identical, interchangeability would have to be established through clinical trials; accordingly.

The biosimilar product also will enjoy a period of market exclusivity that ranges from 12 to 42 months depending on the nature of any patent infringement litigation against the first biosimilar.  That is, the FDA would be prohibited from determining that a second product is interchangeable with the same reference product until the earlier of:

(a) one year after the date on which the first interchangeable biologic was commercially marketed;

(b) 18 months after the date on which any patent infringement litigation against the first interchangeable biologic’s sponsor is dismissed or resolved by final court decision;

(c) 42 months after the date on which the first interchangeable biologic’s application was approved, if the applicant was sued for patent infringement; or

(d) 18 months after the date on which the first interchangeable biologic’s application was approved, if the applicant was not sued for patent infringement.

The reimbursement amount for any biosimilar product would equal the weighted Average Sales Price (“ASP”) of all package sizes of the biosimilar within the applicable billing code, plus 6 percent of the weighted ASP of all package sizes of the reference product within the applicable billing code. Assuming that the weighted ASP for the reference product is higher than that of the biosimilar, the 6% of this relatively higher value provides physicians with an incentive to administer biosimilars instead of reference products.

It is not currently clear how interchangeable and non-interchangeable biosimilars would be treated under “generic substitution” requirements imposed by health plans and governed by state pharmacy laws. For example, would health plans utilize their formularies or implement other utilization management techniques to encourage the dispensing of all biosimilars, or only of interchangeable biosimilars (to the extent otherwise permitted by law)? Generally, when the first generic version of a prescription drug enters the market, the innovator drug may be excluded from coverage under a pharmaceutical benefit entirely. This may not be the case, however, for reference biologics or, at least, for reference biologics with no interchangeable alternative.

Implications for Drug Manufacturers

Defining a pathway to approve biosimilar drugs has a number of implications for the manufacturers of reference products.  On the positive side, a 12-year period of marketing protection defines the outer reaches of the reference product’s lifecycle.  It provides time for drug companies to plan for and address the launch of biosimilars.  It also leads to barriers to entry for biosimilars.

Defining the lifecycle of a branded biotechnology drug could exert upward pricing pressure compared to the current market.  The manufacturer of the branded biotech drugs will need to generate a sufficient return on investment in a shorter timeframe than available today during first 12 years.

Once the branded biotechnology drug’s exclusivity has eclipsed, a single biosimilar will be on the market for 12 to 42 months.  This could lead to downward pricing pressure for branded biotech drugs after 12 years due to generic competition.  As with generic small-molecule drugs, the first biosimilar drug will exert limited downward pricing pressure.  The more significant pricing pressure will occur once multiple biosimilars are on the market.

The question arises as to whether physicians will support a biosimilar drug that has not demonstrated bioequivalency via clinical studies.  Also, how much use of the biosimilar out of clinical studies will be required to convince prescribers that the biosimilar delivers the same outcomes as the reference product?  These questions could extended the lifecycle of the reference biotechnology drug and protect it against downward pricing pressure.

On the flip side of the coin, will the manufacturer of the branded biotechnology drug need to demonstrate clinical and economic superiority to biosimilars to support marketing after the 12-year period of marketing protection lapses?  If yes, there will be a need for the manufacturer of the branded biotechnology drug to conduct comparative outcomes research compared to the biosimilar or bioequivalent drug.

Of course, there is one overriding question about biosimilars and bioequivalents, above and beyond the definition of an approval pathway.  Will the difficulty with developing biosimilars limit the impact of these aspects of PPACA?

 If you don’t have a crystal ball, be patient.  Time will yield the answers to these questions.

September 27, 2010 at 1:27 PM Leave a comment

The Big Bad Drug Industry?

A recent study by the Kaiser Family Foundation found that spending in the US for prescription drugs was $234.1 billion in 2008, nearly 6 times the $40.3 billion spent in 1990. Although prescription drug spending has been a relatively small proportion of national health care spending (10% in 2008, compared to 31% for hospitals and 21% for physician services), it has been one of the fastest growing components, until the early 2000’s growing at double-digit rates compared to single-digit rates for hospital and physician services.  

Since 2000, the rate of increase in drug spending has declined each year except for 2006, which was the year Medicare Part D was implemented. By 2008, the annual rate of increase in prescription spending was 3%, compared to 5% for hospital care and 5% for physician services. From 1998 to 2008, prescription drugs contributed 13% of the total growth in national health expenditures, compared to 30% for hospital care and 21% for physician and clinical services.  


Annual prescription spending growth slowed from 1999 (18%) to 2005 (6%).  The key reasons for this slowing of prescription drug spending are: 

  • Increased use of generic drugs
  • Increase in tiered copayment benefit plans
  • Changes in the types of drugs used
  • A decrease in the number of new drugs introduced.
This profile raises the question as to why the drug industry has been a major focus of the healthcare reform effort.  Sure, some drugs cost more than $100,000 per dose.  That is significant, even for people with insurance coverage, and not easily understood by many consumers and healthcare professionals.  But given the limited portion of healthcare costs due to drugs, the significant rate of introduction of generic drugs, the lack of a significant drug pipeline outside of oncology and other, select disease states, there seems to be limited room for better managing these costs.
Instead, the lack of a significant pipeline outside of oncology therapies should be a major concern.  Pharmaceuticals offer the potential to improve outcomes while offsetting hospital and other healthcare costs.  The United States should support research efforts into new therapies while encouraging appropriate choice of drug therapy and compliance with indicated therapy regimens.  Such concepts as the patient-centered medical home and value-based insurance design should make inroads.  Appropriate provider and patient education will encourage even better therapy choice and enhanced compliance.


Let’s focus our energies in areas where cost savings and improved outcomes can be gained as there is significant room for improvement in the United States.  Let’s not excessively beat up those who are seeking to improve healthcare outcomes in a cost-effective way.


June 9, 2010 at 2:17 PM Leave a comment

Healthcare reform and generic drugs

Recently, I was discussing with a MedSpan client the impact of healthcare reform on the marketing of generic and branded drugs. I thought the core of our discussion would be of interest to others.

1.Is there a reimbursement advantage/ disadvantage (beyond price i.e. loyalty, purchase of other drugs by originator, etc.) for the originator of a cytotoxic drug?

Payers are driven by purchasing the highest quality care for the lowest cost. Lowest cost is based on the purchase price less any rebates.

First-to-market branded drugs have captive markets (assuming the drug delivers clinical benefits). When branded competitors come to the market, payers will consider the following factors: 1) Do the second or third branded drug to market offer any clinical advantages? 2) What are the cost differences between the branded competitors, both in terms of price and net cost after rebates (if any)? 3) What is the market share of the second and third branded drugs to market and how is that likely to change over time? This question examines the disruption for the insurer’s market that might arise from switching to a new preferred drug. It also measures the potential impact on rebates if the rebates are based on market share.

Within this framework, first-to-market branded drugs have advantages due to prescriber loyalty unless the newly launched branded competitors offer significant clinical advantages and/or economic advantages. Please keep in mind that insurers measure significant differently than prescribers due to their different role in the healthcare market.

The launch of generic alternatives significantly changes the market due to their cost savings and clinical equivalence (assuming that is the case). Insurers quickly shift market share from branded drugs to generic alternatives once there is a significant cost differential, which is often up to 6 months after launch of the generic drug. Market share shifts can occur in just a few weeks. Therefore, first-to-market branded drugs have no reimbursement advantages or disadvantages once generic drugs are available.

2. Do payors (private/public) tend to stay with the originator or move away from originator?

Given the framework above, both public and private payers prefer to stay with an originator but will move to an alternative that offers significant clinical advantages and/or economic advantages. If the competitor offers significant clinical advantages and a cost premium, the insurer will determine if the clinical advantage warrants the cost premium. This is a complex decision that could result in equal access or preferred access for one or the other drugs. The definition of significant is primarily based on outcomes rather than convenience for the patient or physician.

3. Will Healthcare Reform change this behavior/ practice? If yes, how? If no, why not?

Healthcare reform will not change the behavior. Healthcare reform expands the size of the covered population and alters the benefit structure. It does not affect how payors evaluate alternative therapies.

However, The American Recovery and Reinvestment Act of 2009 (which is different than H.R. 1495, The Comprehensive Health Care Reform Act of 2009) invested $1.1 billion in federal initiatives to begin the important and necessary work of comparative effectiveness research (CER), a key building block in health care reform. However, whether CER can fulfill expectations of better quality, outcomes and value in health care will depend on how it is implemented. Once results of the CER are available, the data will enable payers to make more informed decisions about comparative outcomes. That data will support the analyses and decisions described above.

May 11, 2010 at 8:36 AM Leave a comment

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