By Donald Zuhn --
Earlier this month, the Congressional Budget Office (CBO) issued a report, entitled "Budget Options, Volume I, Health Care," that presents 115 options for changing U.S. health care policy. In the Preface to the report, the CBO states that "[t]he inclusion or exclusion of a particular policy change does not represent an endorsement or rejection" by the CBO, and that the report provides arguments for and against each option. The report's Preface also notes that in keeping with the CBO's mandate to provide objective analysis, the report makes no recommendations.
Option 68 of the report provides a discussion regarding the establishment of an abbreviated regulatory pathway for approving follow-on biologics under the Public Health Service Act. Under such a regulatory scheme, manufacturers seeking FDA approval for generic biologic drugs (often referred to as follow-on biologics or biosimilars) would be allowed to rely on clinical data and information submitted by manufacturers of brand-name biologics during the approval process of the brand-name biologic. The report states that:
Interestingly, despite the controversy between generic and brand-name manufacturers concerning the issue of data exclusivity, the CBO report simply states that its follow-on biologics option "would grant brand-name biologics 12 years of exclusivity during which time no follow-on biologic could be approved." The report also indicates, not surprisingly, that data exclusivity periods of more than 12 years would reduce estimated savings, and data exclusivity periods of less than 12 years would increase estimated savings.
The CBO report also outlines a modified version of its follow-on biologics option in which the Centers for Medicare and Medicaid Services would be required to place follow-on biologics in the same billing code as their brand-name counterparts for making payments under Medicare Part B. The report notes that such a modification "would financially penalize physicians who did not dispense follow-on biologics, when available, to patients enrolled in Medicare Part B," explaining that because reimbursements to physicians would be based on the average cost of the brand-name drug and all follow-on biologic counterparts, physicians would not receive full reimbursement for prescribing brand-name drugs (assuming that such drugs would be priced higher than their generic counterparts). Moreover, under such a scheme, "physicians would benefit financially from using follow-on biologics because they would be less expensive and physicians would be allowed to retain the difference between the acquisition cost of the biologic and Medicare's payment."
The report predicts that implementation of a follow-on biologics regulatory scheme would save health programs such as Medicare and Medicaid about $8.1 billion over the 2010–2019 period, as well as reduce costs for private health insurance plans and lower insurance premiums for employers by almost 0.2% by 2019. However, if the modification discussed above was also implemented, the report indicates that Medicare and Medicaid savings would increase to $10.6 billion over the 2010-2019 period.
The report lists the reduction in health care expenditures for both government programs and private payers as an advantage of the follow-on biologics option, and a reduction in returns associated with the development of new biologics, and resulting reduction in investment in the research and development of new biologics, as a "potential" disadvantage. The report notes, however, that after a regulatory pathway was established for small molecule drugs in 1984, investment in such drugs continued to grow.
On December 19th, the Biotechnology Industry Organization (BIO) released a statement regarding option 68 of the CBO report, and in particular, the proposal to modify payments for biologic drugs under Medicare Part B. According to the BIO release "[t]he CBO estimate is based on a troubling assumption that reimbursement rules for biologics would be changed in a way that would financially incentivize physicians to switch patients to a cheaper follow-on version of a product at the potential expense of patient safety and therapeutic efficacy." Concluding that "[t]he change would establish a perverse incentive to prescribe the lower-cost biosimilar regardless of efficacy or safety concerns," the BIO release notes that while the industry trade group supports the establishment of a follow-on biologics regulatory pathway, any regulatory scheme "must place ensuring patient safety -- not potential cost savings -- as the central concern."
For additional information regarding this and other related topics, please see:
• "Former House Ways and Means Economist Claims 7-Year Data Exclusivity Period Is Sufficient," November 20, 2008
• "BU Economics Professor Releases Report on the Impact of Marketing Exclusivity on Biologics Innovation," September 18, 2008
• "Congressional Fact-finding on Follow-on Biologics," August 13, 2008
• "CBO Releases Report on Senate Follow-on Biologics Bill; BIO Calls for Congress to Pass Biologics Bill in 2008," July 1, 2008
• "Follow-on Biologic Drugs and Patent Law: A Potential Disconnect?" March 25, 2008
• "New Follow-on Biologics Bill Introduced in the House," March 18, 2008
• "Dr. Robert Shapiro Discusses Follow-on Biologics Report," February 19, 2008
• "BIO CEO Provides Update on Patent Reform and Follow-on Biologics Legislation - Part II," February 14, 2008
• "Biologics Legislation Faces Unresolved Issues," December 28, 2007
• "Senate Committee Passes Biologics Legislation" July 5, 2007
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