Could adoption of biosimilars be slowed by 'rebate trap'? Yale experts think so

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Two Yale authors suggest that rebates paid by drugmakers to pharmacy benefits managers could complicate the introduction of biosimilars in the U.S.

There is an expectation that biosimilars will reap billions of dollars in saving for U.S. consumers by 2020. But there may be a flaw in that logic tied to the rebates drugmakers offer payers to get expensive biologics on their formularies. The practice could actually raise payers’ costs if they offer biosimilars, what two Yale medical experts call the “rebate trap.”

This obstacle to biosimilar adoption is outlined in an editorial published this week in JAMA. And the issue was intriguing enough to spur analysts at Barclays to point it out to clients. While the Barclays folks are not convinced it will play out, they said in their note that “the article raises an interesting point that introduction of biosimilars could in fact raise costs, due to the elimination of rebates.”

Related: Biosimilars look like a good bet now. But will they later? Allergan CEO says maybe not

Drugmakers currently rebate as much as 50% of the price of biologics drugs to have their offered as the preferred med on the formularies of pharmacy benefit managers (PBMs) and insurers, Aaron Hakim and Dr. Joseph S. Ross, M.D., both from Yale University School of Medicine, point out in their piece. But if payers offer biosimilar as the preferred drug, and the branded as a low-tier option, payers would lose a big piece of those rebates, and that might ultimately cost payers more money.

Using hypothetical cost amounts, the authors offer an example where the cost of a biologic runs a payer $25 million a year if 1,000 patients take it, the payer gets a rebate from the drugmaker and there is no biosimilar. But if 500 patients take the branded and 500 take the biosimilar at a cheaper price, but the rebate disappears, the example ends up costing the payer $30 million a year. As the researchers discovered, only when payers offer biosimilars exclusively will the savings be enough to save them and patients money.

“To avoid the rebate trap, any strategy to reduce spending on biologics through adoption of biosimilars requires a near-complete switch of patient users from the branded biologic to the biosimilar,” the piece says.

And that is hard to do, because of expected resistance from doctors and patients to the use of biosimilars. It will probably take the FDA deciding that the biologic copies are interchangeable, like with small-molecule generics, the Yale writers said. On top of that, the treatment guidelines from doctors’ groups would need to recommend biosimilars as first-line agents as they have in Europe where biosimilar adoption is going well.

One payer may have already seen the trap. Last fall, UnitedHealth surprised the market when it said it intended to exclude Sanofi’s insulin Lantus and Amgen’s infection-fighter Neupogen in favor of their biosimilars.

The JAMA piece comes even as rebates have become a flashpoint in the debate between drugmakers and payers over who is responsible for rising drug prices. Payers, of course, say companies are pricing their new drugs too high, but drugmakers counters with the argument that payers' addiction to rebates is a big factor, an argument PBMs flatly deny.

Related: In quick rebuttal, Express Scripts blasts Gilead exec's pricing blame

Since the finger pointing over prices brought the practice to light, politicians, and federal authorities have taken an interest. Express Scripts last fall acknowledged that it had gotten a demand from the Justice Department for info about financial ties with pharma companies, as well as the relationships among drugmakers, patient assistance programs and the specialty pharmacies that fill prescriptions.

Related: DOJ turns tables on Express Scripts, demands info on pharma deals

More recently, a bill has been introduced into the U.S. Senate that would force PBMs to report the total amount of rebates they collect from pharma companies and require them to return a minimum proportion of their drug rebates to insurers to help alleviate patient expenses.

The way the Barclays analysts see it, rebates are likely to remain a key lever for both payers and manufacturers in negotiations, but they do have the potential to complicate the adoption of biosimilars as the complex pricing process shifts to accommodate them.