AAM Jousts With Rebate Penalties for Generics and Biosimilars

As the House moved toward a vote on the $1.75 trillion Build Back Better Act (BBBA), the Association for Accessible Medicines (AAM) stepped up efforts to block elements of the bill that would enable Medicare to institute caps on drug prices, negotiate drug prices, and force manufacturers to pay “rebate penalties” if their drug price increases exceed the general rate of inflation.

“This is jarring what this proposal could do to the generics and biosimilars industry, but more importantly, what it can do to seniors who rely on affordable medicines,” Dan Leonard, MA, president and CEO of AAM, said in a press conference. AAM is a trade association of biosimilar and generics manufacturers.

The group contends that generics and biosimilars are the good guys in the effort to rein in drug price inflation and said the price-reducing effect of these agents could be “dampened” by policies under consideration in Congress. Further, the proposed policies threaten to undermine the sustainability of generics and biosimilars manufacturing, they said.

“Generics and biosimilars today account for 90% of the prescriptions filled in this country, but only 18% of the total spend on drugs, so 10% of the drugs are driving 82% of the spend,” Leonard said.

BBBA Provisions

Under the BBBA, which remains a work in progress, with last-minute revisions, the prohibition on Medicare for negotiating drug prices under Medicare Part D would be ended. Drug price negotiations also would be extended to Part B and would affect originator brands for which there is no competition.

Biosimilars are covered under both Part D and Part B and although they apparently would not be affected by any negotiation requirement, the AAM's membership does include manufacturers of originator, or reference, brands and the biosimilars and generics that compete against them. The AAM's opposition to drug price negotiations serves the interest of these originator companies.

Also under the BBBA, Medicare would gain the ability to limit negotiated prices to 120% of the Average International Market price as determined by prices in markets abroad (Australia, Canada, France, Germany, Japan, and the United Kingdom).

An additional BBBA provision would require manufacturers to reimburse or “rebate” Medicare Part B and Part D if their drugs exceed the rate of urban Consumer Price Index (CPI-U) inflation. The rebate would equal the total drug cost minus the average sales price with the CPI-U inflation value included.

CMS has estimated that drug price negotiations would lower cost sharing for Part D enrollees by $102.6 billion between 2020 to 2029 and Part D premiums for Medicare beneficiaries by $14.3 billion. The BBBA would extend the negotiated price options to private health insurers, and CMS has estimated savings of $54 billion between 2020 and 2029 for their patients.

Christine Simmon, JD, AAM’s executive vice president of policy and strategic alliances, said the timing of the policy initiatives would injure the nascent market in biosimilars. With 31 approved and 21 launched, “the biosimilar market is certainly in its early days, but it is proving its vitality and it’s delivering the savings for patients,” she said.

Biosimilars require an investment of $100 million to $300 million to develop, and FDA approval can be a 10-year process, she said. “If you add on top of that the time it takes to challenge patents and the significant litigation costs, we’re talking about a significant investment.”

Free Market Analysis

Wayne Winegarden, PhD, director of the Center for Medical Economics and Innovation at Pacific Research Institute, a conservative think tank, commented that the proposed rebate penalty would interfere with the smooth operation and efficiency of the free market.

“The CPI provision is a form of price control, and price controls inevitably lead to adverse consequences. In the case of generics, there is no reason to believe that changes in the costs of production for any given year will reflect the average change in prices reflected in the CPI,” he said.

“The pricing limitation consequently creates a new risk for manufacturers—specifically, that a price spike in the costs of materials or production will turn a profitable product into an unprofitable one,” he said.

Higher Launch Prices?

Some institutions that have done analysis of the rebate provision have speculated that manufacturers might start charging higher prices when their drugs enter market to pad against the inflation penalty. Winegarden agreed with that, and added, “Alternatively, these higher risks could discourage the production of several types of generic medicines altogether.”

The BBBA provisions were spurred in part by contentions that drug manufacturers abuse their product exclusivity (patents) by raising prices far more often than necessary and often in advance of the arrival of competing products, to add last-minute profits to their revenue total.

A case example often cited is AbbVie’s pricing program for the adalimumab product Humira, for which the cost of an annual course of treatment climbed from $13,589 in 2003 to $77,586 in 2021, on the back of 27 separate price increases, sometimes multiple increases in a single year.

Asked why the AAM membership would not be satisfied with CPI-adjusted price increases, Leonard said that generics often sell for so little that prices would need to be raised higher than a CPI increase. “If you have a generic priced at $1 a unit, and it goes up a couple cents, that triggers the penalty. And because of the low margin that our members operate under, that threatens the ability to sustainably produce that medicine and increases the risk of shortages,” he said.

Simmon said the Humira pricing example underscores the value of biosimilars and the importance of preserving the existing framework for determining price.

In 2023 at least 6 FDA-approved biosimilar forms of adalimumab will enter the marketplace, she noted. “We’re all looking very much forward to 2023, when we can have competition for a key biologic product and provide that access and savings for patients.”