Impact of Generic Drugs and Biosimilars on Healthcare Costs
Chairman Cassidy, Ranking Member Sanders, and esteemed committee members, thank you for allowing me to discuss the pivotal impact of generic drugs and biosimilars on reducing prescription drug expenses in the United States. My name is Ryan Long, Senior Research Fellow at the Paragon Health Institute and a Nonresident Senior Scholar at the USC Schaeffer Institute. Previously, I served as a Senior Policy Advisor to House Speaker Kevin McCarthy and held the position of FDA Counsel and Chief Health Counsel for the House Energy and Commerce Committee.
Legislation like the Hatch-Waxman Act and the Biologics Price Competition and Innovation Act (BPCIA) has saved the U.S. healthcare system over $3 trillion in the last decade. My testimony centers on six key topics: the history and potential of biosimilars, the Hatch-Waxman framework for generics, advancements and ongoing challenges in generic drug approvals, increasing generic usage among Medicare beneficiaries, FDA’s policy on over-the-counter (OTC) drug switches to reduce costs, and the impact of the 340B program on the use of generics and biosimilars.
Biosimilars, complex medications derived from living cells, became a cost-effective alternative post-2010 due to the BPCIA. This bipartisan initiative established an FDA pathway for biosimilars, which are high-quality alternatives to biologics, with potential pharmacy substitutions. Since 2015, 90 biosimilars have been approved, including 25 with interchangeability designations. The market presence of biosimilars has led to significant savings, with $12.4 billion saved in 2023 alone, marking a 30 percent increase compared to the previous year.
Despite success in Medicare Part B, biosimilar uptake in Part D remains low, indicating systemic issues. The entry of biosimilars aimed to create a competitive market, reducing prices on both biosimilars and original biologics. Considerable cost reductions for patients and savings in program spending have been observed in Medicare Part B due to this competition. However, formulary structures that prioritize rebates over patient interests continue to suppress biosimilar utilization.
Biosimilars and Regulatory Challenges
The FDA has streamlined biosimilar approval processes, aligning with advanced analytical technologies to expedite approval times and reduce development costs. However, challenges persist, such as the "rebate trap" imposed by pharmacy benefit managers (PBMs), which hampers biosimilar market penetration. Recent legislative measures and Federal Trade Commission actions aim to address these distortions by altering PBM compensation structures and ensuring rebate pass-throughs to payers.
Generics and Market Impact
Generics comprise 90 percent of prescriptions in the U.S., substantially contributing to savings. The Hatch-Waxman Act's Abbreviated New Drug Application (ANDA) pathway has revolutionized the pharmaceutical market, enabling generics' entry without repeating clinical trials. The Generic Drug User Fee Act (GDUFA) has reduced approval times and backlogs, fostering an environment conducive to the approval of both generics and complex generics.
Moreover, regulatory changes facilitating OTC transitions could further cut healthcare costs by reducing unnecessary visits. The OMUFA II legislation incentivizes manufacturers to pursue OTC applications, emphasizing streamlining the approval process. Conversely, the 340B Drug Pricing Program creates market distortions by encouraging higher-priced drugs, discouraging biosimilar and generic use. Reforming the 340B program could better align with its original purpose of aiding low-income patients while promoting competition and lowering costs.
To address these multifaceted issues, recommendations to Congress include supporting FDA’s regulatory refinements for biosimilars, restructuring Medicare cost-sharing incentives to favor generics, enhancing OTC access, and reforming the 340B program to discourage higher-cost drug preferences. Competition, transparency, and aligned incentives are crucial to reducing drug costs while retaining the industry's innovative potential. I appreciate the committee’s focus on these challenges and look forward to any questions.