How Inflation, Competition, Biosimilars Affect Prescription Drug Costs

Inflation factors can indirectly affect prescription drug costs, but biosimilar adoption and competition can help combat excessively high prices and increase patient access.

February 11, 2022

nflation can indirectly affect prescription drug costs through exchange rate fluctuations and devaluation of the national currency. Notably, retail prices for some of the most widely used brand-name prescription drugs continue to increase twice as much as inflation.

Between 2018 and 2019, half of the drugs covered by Medicare Part D plans experienced a price increase that exceeded inflation, according to a Commonwealth Fund blog post. And in 2021, drug manufacturers increased prices an average of 4.2 percent on over 900 brand-name drugs.

“There are two big drivers on drugs costs. One is ensuring competition. The price of a drug is greatly impacted by the extent to which there is competition. The second big challenge and one that remains more difficult to address is the initial price of new medications,” Steven Lucio, senior principal of pharmacy solutions at Vizient, told PharmaNewsIntelligence in an interview. 

Vizient’s 2022 Pharmacy Market Outlook found that the estimated drug price inflation rate for this year will reflect a moderate price increase.

For example, Humira has been the top agent in global spending since 2012 and would have remained that way if not for the COVID-19 pandemic. In 2020, FDA-approved COVID-19 treatment, Veklury (remdesivir), replaced Humira in total spending across all classes of trade.

This purchase pattern illustrates the challenge that academic medical centers, integrated health systems, and other key provider organizations have faced with enduring costs of existing expensive medications resulting from the COVID-19 pandemic, Lucio explained.

Overall, the price of new medications greatly affects pharmaceutical inflation and there is a crucial need for a balance of drug price with benefit. But the high drug prices present a seemingly insurmountable problem.

Americans pay more than $1,500 per person for prescription drugs, notably higher than any comparable nation. Currently, there are 17 drugs with a treatment cost over $700,000 and five drugs with treatment prices over $1 million, hence the continued debate as to whether these prices are appropriate relative to the potential treatment benefit.

“It is important to reward the continued investment in new drug development to treat conditions where no adequate therapies presently exist. The challenge is that the majority of diseases where innovation is critically needed are very severe and frequently extremely specialized,” Lucio stated.

“Given the severity of the disease, the vulnerability of the patient population treated, and the use of novel technologies, the initial launch prices are extremely high,” he continued.

Take, for example, the ongoing controversy related to Biogen’s Alzheimer’s medication, Aduhelm. This drug was launched at a price of $56,000 annually and may increase prescription drug spending and the national health expenditure by more than $73 billion by 2028.

However, the lack of clarity surrounding the drug’s true clinical benefit has prompted many providers to decline even offering the therapy. For example, In March 2019, Biogen discontinued its ENGAGE and EMERGE trials based on results of a futility analysis conducted by an independent data monitoring committee.

Overall trial results showed that Aduhelm administered as a monthly infusion was not better at slowing memory loss and cognitive impairment than placebo. Therefore, the committee concluded that the trials were unlikely to meet their primary endpoint upon full completion.

Drug prices are also significantly impacted by market competition. If there is competition for a drug, especially at initial market entry, inflation is non-existent or considerably reversed. But if no competition exists, manufacturers take an annual or biannual price increase. The size of the price increase generally escalates as the product nears its loss of exclusivity.

FDA grants market exclusivity and patent protections to allow drug developers to recover their research and development costs. But the biggest opportunity for near-term value with drug prices are biosimilar drugs.

Biosimilars are newer, similar versions of FDA-approved medicines offered at lower prices, creating competition in the biologic market. In 2021, FDA approved the first interchangeable biosimilar product for diabetes treatment, the first biosimilar for certain inflammatory diseases, and the first biosimilar to treat macular degeneration.

As biosimilars enter the US market, increased competition will make vital medications 15 percent to 35 percent cheaper and grant patients more treatment options. US taxpayers and the healthcare sector can save nearly $7 billion annually with a more robust, more competitive biosimilars market.

“At this point, there is likely nothing more critical to lower drug prices than encouraging biosimilar consideration and adoption,” Lucio stressed. “Biosimilars offer a large opportunity in cost savings, and continuing to support the biosimilar pathway and limiting excessive patenting as a strategy to prevent competition are steps the government has and can continue to take in managing drugs costs.”

While healthcare discussions have centered on controlling drug pricing, providers must confront another critical challenge: drug shortages for essential meditations, Lucio noted. Currently, over 100 drugs are in short supply across the US. 

Lucio and his team recently launched the End Drug Shortages Alliance (EDSA). The EDSA collaborates with providers, suppliers, advocacy, and other stakeholders committed to ending drug shortages by promoting increased transparency, improved quality, and enduring access to sustainable suppliers of essential medications.

“Just as competition is critical to keep drug prices from getting excessively high, it is also essential to ensure that the availability of critical drugs is uninterrupted, especially the duration of shortages that predated the pandemic and were worsened by COVID,” Lucio concluded.

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