Biosimilars and PBMs: The Joke’s on Us

Two innovations in health systems and health policy – PBMs and biosimilars – are supposed to save us money on drugs. But so far, it looks like the joke is on us. PBMs (pharmacy benefit managers) can actually drive prices higher. Their stated purpose is just the opposite – to drive drug costs down. Adding insult to injury, the emergence of biosimilars (generic versions of complex biological drugs) was supposed to drive costs down, but PBMs seem indifferent to this cost-cutting innovation.

The joke’s on us. Our healthcare systems seem to be tuned to drive prices only in one direction – up. There’s another word for that. It’s profiteering.

The Big Yawn for Biosimilars

Way back in 2009, Congress passed legislation to promote price competition for biological drugs. When simple drugs that are relatively small molecules go off patent, generic drug makers come in with precise copies to drive prices down. But biologics are made up of big, complex molecules that are not so simple to copy precisely. That’s where biosimilars come in. Since a chemical copy of complex molecules is not really an option, Congress and FDA created a pathway for biosimilars – copies that are biologically equivalent.

But getting this pathway to price competition has been very slow. It took until 2020 for the path to be fully cleared for biosimilar insulins. Even after the introduction of the first one of these in 2021, insulin prices did not drop immediately. In fact, insulin prices didn’t move much until this year, when one of the leading makers of insulin, Eli Lilly, announced last month it would start slashing its prices for insulin. Other insulin makers followed.

Likewise, one of the most profitable biologicals in the world – Humira – has been very resistant to competition from biosimilars. The key patent on this drug expired in 2016, but its maker blocked competition until this year. And now, industry experts say that PBMs are acting indifferent to the price competition that biosimilars for Humira should bring.

Are PBMs the Problem? Or Just a Symptom?

Deservedly, PBMs are getting a lot of bad press right now. They are very opaque about their business practices, but they make money by negotiating big rebates on high-priced drugs and keeping a cut of those rebates for themselves. So higher list prices are good for them. They have more room to negotiate bigger rebates and keep some of that padding in the prices for themselves.

Mark Cuban is on a mission to disrupt that business model with his Cost Plus Drug Company. Describing price distortions that PBMs and health insurers create, he says:

“The fact an insurance company wants you to price your generic at even, sometimes, above a brand price is insane. It is just absolutely freaking insane.”

This is part of the reason that new drug prices rose by more than 8,000% between 2008 and 2021. Need we mention that this is unsustainable?

So PBMs are definitely under scrutiny – both from Congress and from FTC. But the problem is bigger than PBMs. The real problem is that we have a system tuned for profiteering. This needs to change.

Click here for more on the underwhelming response of PBMs to biosimilars for Humira, here for more on insulin pricing, and here for more on profiteering that is making healthcare a luxury.

Dresden’s Spectrum – The Joker, illustration by Otto Gustav Carlsund / WikiArt

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April 12, 2023