Biosimilars May Not Deliver Savings Due to Rebates on Biologics

A recent editorial published in JAMA explained that biosimilars may not deliver the savings payers and consumers had hoped as a consequence of large rebates negotiated by pharmacy benefit managers.

The authors, Aaron Hakim, MS, and Joseph S Ross, MD, both of the Yale University School of Medicine, suggested that due to something known as the “rebate trap,”—a flaw through which biosimilars are offered as low-tier options by payers and thus cost more money because reference products have larger negotiated rebates—biosimilars may fail to deliver signficant cost savings.

“Biosimilars for chronic diseases, the largest category of biological therapies, are unlikely to yield widely expected cost savings,” Mr Hakim and Dr Ross wrote in their commentary. “Rebate agreements between pharmaceutical companies, pharmacy benefit managers, and other payers create an incentive for payers to prefer more expensive branded biologics over biosimilars.”

Mr Hakim and Dr Ross explained that most pharmaceutical companies provide substantial rebates on reference biologics to payers through use of pharmacy benefit managers. According to their commentary, chronic disease biologics can sometimes have rebates up to 50% off the drug’s list price. If a biosimilar is offered at a 15% discount, payers are still unlikely to provide the biosimilar as the preferred product for fear of the pharmaceutical company pulling their 50% discount on the reference product.

“Even in [an] optimistic scenario, in which the price of the biosimilar is 60% less than the price of the brand after rebates and discounts, if the payer is only able to convert 50% of its patient users to the biosimilar, the rebate trap ensures that payer total costs actually increase relative to costs prior to biosimilar availability,” Mr Hakim and Dr Ross wrote.

They further explained that in order for biosimilars to achieve cost-savings, nearly the entire patient base in a plan would have to switch to the biosimilar product. The authors noted that this is unlikely because only about 20% of patients are new users, while the remaining 80% are patients with well-maintained disease who are unlikely to switch products.

Mr Hakim and Dr Ross suggested that better policy needs to be used in order to make biosimilars a cost-savings solution. They said that “interchangeability” needs to be more easily established, giving pharmacists and providers the ability to switch products at the point-of-sale/distribution.  They also recommended that guidelines could recommend biosimilars as first-line treatments over reference biologics in order to encourage adoption among providers.

“Many of the challenges currently being raised against biosimilar substitution are similar to arguments used against traditional generic drug substitution following the passage of the Hatch-Waxman Act in 1984,” Mr Hakim and Dr Ross concluded. “Small-molecule generic drugs are now broadly viewed as an appropriate substitution for brand-name pharmaceuticals. Once the same is true for biosimilars, the health care system will likely realize substantial savings.”

—David Costill