Not all drugs are created the same. Take generics and biologics: The former is a chemical-based medicine whose manufacture is easily replicated, while the latter is created using biological processes.
But there's another key difference between those two classes of drugs, and it pertains to the financial state of the healthcare industry and to U.S. taxpayer dollars. Stated plainly, biosimilars have the opportunity to bring significant savings to state Medicaid programs and consumers with commercial insurance. That gives them a leg up over their chemical-based counterparts.
That's the broad finding of a recent study from the Pacific Research Institute, but it goes deeper than that. It turns out that every state in the country would see significant savings in its Medicaid programs by expanding the use of biosimilars as opposed to the more expensive originator biologics.
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Biologics have no meaningful difference in terms of safety or effectiveness compared to its originator biologic medication. This differentiates them from generic medications, which are chemically identical versions of a branded medication.
Biosimilars currently save the healthcare system more than $240.4 million, according to Wayne Winegarden, director of PRI's Center for Medical Economics and Innovation. Of these savings, 19.8% -- or $47.5 million -- is being realized by state Medicaid programs and 56.9% ($136.8 million) is being realized by the commercial market.
But greater use of biosimilars could create significantly more savings. If biosimilars obtained a 75 percent market share, less than the share of these medicines in many European Union nations, the resulting annual savings for the U.S. healthcare system could be nearly $7 billion, based on Winegarden's analysis.
It's all about introducing greater market competition.
"When we talk about the drug cost problem, what we're really talking about is biologics," said Winegarden. "Because we don't have that competitive process, we're spending too much. So if we can get that market up and running, that would be a market-based solution to the cost of drugs."
It's important to recognize that, as of the data evaluated, there was only approved biosimilar competition in nine drug classes. The potential annual savings for Medicaid, Medicare and the commercial market is even larger if even more biosimilar competition is introduced.
"Right now, in just the drug classes we have, you have a disproportionate benefit to the federal Medicare program because the strongest biosimilar is one where seniors don't disproportionately use it and others do," said Winegarden. "So when you initially get these up and running, and you have a disproportionately large savings to the federal government. Once you get to 50% market share, it evens out."
His projections show tens of millions in savings for smaller states, and hundreds of millions for some of the larger states -- particularly Florida, which has an outsized number of elderly citizens.
Despite the forecast, there are still some barriers to more widespread adoption of biologics -- chief among them the buy-and-bill system, in which a provider purchases a drug and then marks it up for profit.
"There's a bias toward more expensive drugs because a higher price has a higher cost," Winegarden said. "This is a systemic issue. People are trying to keep their heads above water. You're incentivizing organizations to use higher-price medicines because they get more money."
Winegarden said there should be greater regulatory guidance from the FDA to eliminate systemic biases against biologic medications. Under an ideal scenario, the initial, innovative product would have exclusivity to recover the cost of capital, but once that's achieved, the market would be opened up to competition.
And the estimated savings show that private sector firms and state governments have incentives to support reforms to the current system. The most effective reforms would correct the current regulatory policies, promote greater education of the benefits of biosimilars and eliminate the adverse market incentives that discourage more widespread use.
Winegarden expects biosimilar use will spread.
"I'm optimistic, because they are safe, they have the same efficacy, and it's a 40 to 50% discount off the most expensive medicines that are out there," he said. "This is the heart of the cost issue.
"Biosimilars offer the opportunity to significantly bend the cost curve on the most expensive products through a market-based mechanism," he said. "I think it's very likely we see more and more biosimilars, especially when you look at their success in the EU, where they're 80 to 90% of the market."
Focus on Reducing the Cost of Care
This month, Healthcare IT News, MobiHealthNews and Healthcare Finance News take a look at what all of this means and how technology, as always, is spurring innovative solutions.