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Increasing Generic and Biosimilar Competition to Contain Rising Drug Costs
Prescription drug prices are a near constant in the news, drawing attention and raising concerns about medication access and affordability.
The good news is that hope is not lost when it comes to containing costs. By employing smart strategies, it is possible to slow the rate of drug trend (the rate of drug spending growth).
In fact, even as drug prices continued to rise, trend for CVS Health’s commercial pharmacy benefit management clients actually declined in 2016 compared with 2015.
How is this possible? CVS Health uses a number of approaches to help drive down costs, including advocating for increased competition in the market. This includes competition from unbranded and generic alternatives to brand name drugs, which provide consumers more affordable options.
Generics Help Push Down Costs for Consumers
There are two types of unbranded drugs – generic drugs and biosimilars:
Generic drugs are chemically identical to brand name drugs – they are the same in terms of dosage form, administration, quality, performance characteristics, strength, safety, and intended use. The difference is that they are typically sold at a significant discount relative to the branded drug.1
We believe that increasing the number of generic alternatives to branded drugs promotes competition in the market and tightens the reins on branded drug price increases. In fact, the U.S. Food & Drug Administration (FDA) analysis has found that the price of a drug falls most dramatically with the entry of the first couple of generic competitors, and continues to fall incrementally as additional generic competitors enter the market.2
Biosimilars are biological products that are highly similar to FDA-approved, brand-name specialty biologics (therapies isolated from a variety of natural sources using cutting-edge technology3), with no clinically meaningful difference in safety and efficacy.4
Specialty drugs, many of which are biologics, accounted for 73 percent of overall medicine spending growth over the past five years,5 so having an unbranded competitor could help drive down costs. RAND Corporation estimated that the entry of biosimilar products into specialty markets could reduce spending on biologics by an estimated $44.2 billion over the next decade.6
Generic and Biosimilar Competition Can Drive Down Trend
Prescription benefit managers such as CVS Caremark maximize the value of generics and biosimilars by designing managed formularies with clinically equivalent alternatives to branded drugs to increase dispensing rates of these lower-cost options.
Our track record shows that encouraging their use is containing spending growth: in the 2016 Drug Trend Report, generic drugs had the largest deflationary impact on trend due to higher dispensing rates combined with low overall inflation and falling prices for most generics.
Additionally, there is potential for biosimilars to positively impact trend in the future, much as generics have in traditional drug markets; however, there are currently only four FDA-approved biosimilars.7
Specialty pharmaceuticals account for roughly 36 percent of spend for our PBM clients, increasing competition with biosimilars could help bring down prices for these expensive products.
Unlocking More Competition to Reduce Costs
Competition in the drug market is influenced by the speed of new generics and biosimilars entering the market. At the start of 2017, more than 4,000 generic drugs were pending approval at the FDA. In comparison to the European Union, the U.S. has much catching up to do: Europe approves drugs more quickly and has 20 biosimilars on the market compared to our four.
As the health care landscape continues to evolve, increasing the flow of generics and biosimilars is an important step to unlock the cost savings potential for patients, taxpayers and the health system as a whole.
For more information on how CVS Health is working to ensure consumers have access to affordable medicines, check out our Rising Drug Prices information center. And to stay informed about the most talked-about topics in health care, register for content alerts and our bi-weekly health care newsletter.