Inflation-Based Rebates Need Not Apply

Patient Access Would be Threatened Should Penalties Hit Generic and Biosimilar Medicines

Patients continue to struggle to afford the high cost of certain medications. High launch prices on new brand biologics and annual price increases on existing brand-name drugs, combined with an increasing trend of anti-competitive tactics designed to delay or prevent competition from more affordable biosimilars and generics, are pushing access to medicines out of reach for too many patients.

Seeking to address high brand-name drug costs, Congress is now considering creating inflation-based rebate penalties in Medicare. But one such proposal would apply the rebates to both brand-name and biosimilar and generic medicines, failing to recognize the fundamental differences between these markets. Brand markets are monopolistic while generic markets are competitive. Competition drives down prices for generic medicines. Well-intentioned policies that apply inflation-based rebates uniformly across both markets could therefore threaten patient access to affordable medicines, which runs counter to Congress’ goal of lowering prescription drug costs.

Biosimilar and generic medicines are the solution to lowering prescription drug costs – not the problem.

Independent research and data starkly demonstrate one undeniable conclusion: Biosimilar and generic medicines are not contributing to the drug pricing challenges facing patients and our country. In fact, competition from biosimilars and generics drives costs lower and offsets brand-driven increases in Medicare spending. In its most recent report to Congress, MedPAC reported generic drug prices in Part D declined by an average of 13.7% from 2006-2018 and experienced a decline of 11% 2018-2019.

Generic drugs are especially vulnerable to shortages and increased operational costs due to the highly competitive nature of the generic drug market that produces significant savings for patients. This results in an active landscape where manufacturers regularly enter and exit markets as conditions change. These market exits can strain the supply chain and may leave providers with limited supply to meet patient needs – a dynamic highlighted in the Biden-Harris administration’s 100-day supply chain report issued this summer.

Applying an inflation-based rebate would serve only to undermine the ability of a generic to stay in or reenter markets facing drug shortages.

Inflation-based rebates are more easily triggered for low-cost medicines than high-cost brands. Due to the relatively low-cost of generic medicines, minor price changes can result in significant percentage increases. For most generic drugs, the price needs to increase only a few pennies to trigger the rebate.

Several factors may contribute to price increases for generic medicines and price increases can occur for reasons beyond the manufacturer’s control. The COVID-19 pandemic led AAM’s members to reroute supply chains and enlist new suppliers around the world. In a survey conducted of our members last year, we found transportation costs increased by an average of 224% – with at least one manufacturer reporting as much as a 413% increase in shipping expenses. Those costs have only continued to climb as purchasing behavior changes and the market demands high costs for shipping goods.

With an inflation-based rebate penalty in effect, the ability of generic and biosimilar manufacturers to sustainably produce affordable medicines would erode, creating serious consequences for America’s patients. We strongly encourage Congress to focus its efforts on what is driving prescription drug costs up – and avoid applying inflation-based rebates to generic and biosimilar medicines.

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Erik Komendant

By Erik Komendant, AAM Vice President, Federal Government Affairs
Published on October 26, 2021




Association for Accessible Medicines


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