AAM Report: Despite Massive Savings, Patient OOP Costs on Biosimilars, Generics Remain High, Part 2

While generics and biosimilars have the potential to significantly reduce drug costs—and led to savings of approximately $445 billion in 2023 alone—challenges such as high patient out-of-pocket expenses, drug shortages, and ineffective policy environments are currently undermining their impact and adoption, as detailed in the latest report from the Association for Accessible Medicines (AAM).¹

AAM, a leading national trade association for manufacturers of generic and biosimilar prescription drugs, is dedicated to enhancing patient lives by advocating for timely access to affordable, FDA-approved generics and biosimilars. Through its Biosimilars Council, AAM works to create a regulatory, reimbursement, and policy environment that promotes the increased adoption of biosimilar therapies.

The U.S. Generic & Biosimilar Medicines Savings Report highlighted the value of the generic and biosimilar industry, marking AAM’s 14-year collaboration with the IQVIA Institute.

In Part 2, The Center for Biosimilars^® will explore how these savings impact out-of-pocket costs for patients and the policies that help ensure these savings are effectively passed on to consumers. Part 1 of this series examined the overall savings achieved by generics and biosimilars.

Impact to the Patients and OOP Costs

Many patients face unnecessarily high costs due to pharmacy benefit manager (PBM) and health plan formulary decisions that place generics on non-generic tiers and favor reference biologics over biosimilars. Formulary tiers are designed to reward patients for using the lowest-cost options, but in recent years, as generic medicine prices have dropped, many Medicare Part D plans have continued to place generics and biosimilars on higher tiers with higher co-pays. This forces senior citizens to pay more for lower-cost generic medications, often exceeding the actual cost of the medicine.

As a result, patients are paying more for their generics even though the prices of these medicines have declined. This situation increases patient spending on the most affordable medications, leading many insured patients to abandon their insurance coverage and instead rely on pharmacy discount cards to afford their generic prescriptions. PBM and health plan decisions to shift generics to non-generic tiers directly raise copays and impose higher costs on patients.

An analysis of generic drugs covered in 2011 and 2019 showed that shifting generics to brand tiers resulted in a 135% increase in annual patient spending, even as the average price of those medicines fell by 38%. The number of patients forced to pay the full cost of their drugs is also rising. In 2017, 45% of Medicare patients paid the full cost of their generic medication at least once, but by 2020, nearly two-thirds of Medicare patients faced this burden.

Additionally, employers are starting to come under fire for having health plans that force patients to pay astronomical prices for medications. In February 2024, a Johnson & Johnson (J&J) employee with multiple sclerosis filed a class action lawsuit against the company, alleging mismanagement of prescription drug benefits under the Employee Retirement Income Security Act (ERISA).² The plaintiff claims she was forced to pay exorbitant prices for a branded MS medication despite a cheaper generic alternative being available. The lawsuit accuses J&J and its pharmacy benefit manager (PBM) of prioritizing higher-cost drugs and failing to manage employee benefit plans properly, leading to inflated costs for participants.

This case comes amid increasing scrutiny of PBMs' role in drug pricing, with recent Congressional hearings highlighting how PBMs favor brand-name drugs over generics. If successful, the lawsuit could lead to financial restitution for affected employees, improved benefit management, and set a precedent for similar ERISA-related cases.

Drug Shortages and Policy Intervention

Drug shortages, especially of generic medications, pose a serious challenge to patient care. Generics are particularly vulnerable due to several factors, including unsustainably low prices, problematic government policies, supply chain disruptions, and manufacturing issues.

Notably, more than 60% of generic drugs currently in shortage are priced at $1 per unit or less. To address and reduce future drug shortages, comprehensive policies are necessary. These should aim to improve the long-term sustainability of generic drug competition through measures such as earlier adoption of new generics, ending abusive purchasing practices, preventing a "race to the bottom" in pricing, and reforming government policies that penalize low-cost generic manufacturing.

A common issue among drug shortages is the combination of unsustainably low generic prices and new government policies that hinder competition. This situation strains supply chains and can leave health care providers without sufficient medications for their patients. To mitigate future shortages, policymakers should focus on creating incentives for earlier adoption and more sustainable pricing of generic medicines

“This should serve as a wakeup call to policymakers. Without rapid action to streamline the FDA approval process, reduce abusive patent thickets, mitigate the unintended consequences of government price setting, and remove the perverse incentives of PBM and brand drug rebates, patients will not realize the full value of biosimilars. Biosimilars have already provided more life-saving medications to more patients, but more savings and access are possible,” wrote Burton.

Ensuring Biosimilar Market Sustainability

Since 2015, nearly $36 billion has been saved through biosimilars, with over $12.4 billion saved in 2023 alone. However, biosimilar adoption is limited by misaligned incentives and PBM practices. While medical benefit biosimilars have better uptake, pharmacy-dispensed biosimilars struggle due to PBM practices favoring high-priced originator brands.

Biosimilars have demonstrated safety and efficacy, with 2.7 billion days of patient therapy showing no significant issues. However, biosimilar market share is often concentrated among a few competitors. Originator biologics see price reductions of 33% after biosimilars enter the market, with biosimilars priced more than 40% lower than brands at launch. Proper alignment of incentives could save up to $42.9 billion by 2027. The biosimilars industry's future is uncertain due to high development costs, slow adoption by health plans and PBMs, and government price-setting policies. A successful biosimilars market requires streamlined development, patent reform, and supportive coverage policies.

Small molecule generics generally capture more market share than biosimilars post-exclusivity loss, achieving 47% within a year compared to an average of 20% for biosimilars. Adoption of adalimumab biosimilars remains low due to insurer coverage decisions not prioritizing lower-cost options.

In a letter introducing the report, David R. Gaugh, interim president and CEO of AAM, had this to say: “The long-term sustainability and success of these industries and the very health of our nation’s patients – hang in the balance. The rate of drug shortages has increased as manufacturers face challenges including rapid price deflation, supply chain challenges, Medicaid rebate policies that harm generic competition, slower adoption of new products due to abusive pharmacy benefit manager (PBM) financial engineering, and brand drug patent thickets. We cannot afford to take our generic and biosimilar industries for granted.”

References

1. The U.S. generic & biosimilar medicines savings report: September 2024. AAM. September 6, 2024. Accessed September 16, 2024. https://accessiblemeds.org/sites/default/files/2024-09/AAM-2024-Generic-Biosimilar-Medicines-Savings-Report.pdf

2. Jeremias S. Patient with MS sues J&J over ERISA violation. The Center for Biosimilars. February 14, 2024. Accessed September 16, 2024. https://www.centerforbiosimilars.com/view/patient-with-ms-sues-j-j-over-erisa-violation