The Association for Accessible Medicines’ Chip Davis outlines the ways in which the US Medicare programme needs updating in order to promote generic and biosimilar competition and therefore increase patient access to more affordable medicines.


In this election year I hope that the candidates will lay out their solutions to expand access to quality, lower cost generic and biosimilar medicines.

Today, more than 60 million American seniors get much-needed prescription drug coverage through the Medicare program. This will cost USD 88 billion in 2020 and is projected to more than double over the next ten years. While largely viewed as a successful program overall, the fact is that the Medicare drug program is missing out on important opportunities to drive savings for seniors and taxpayers. This is the result of policy choices that have erected unintended barriers to lower-cost generic medicines, as well as the failure to update the program to reflect the advent of new biosimilar medicines that promise access at lower costs. These challenges have only grown in recent years, and in this election year I hope that the candidates will lay out their solutions to expand access to quality, lower cost generic and biosimilar medicines.


AAM’s 2019 Generic Drug & Biosimilars Access & Savings in the U.S. Report, subtitled “The Case for Competition,” and shows how Medicare needs to be updated to support generic and biosimilar competition so that patients are not compelled to pay for higher-cost brand drugs.


Promoting use of generic over brand-name drugs ought to be a cornerstone of Medicare Part D. After all, generic medicines are just as safe and effective, but far less expensive than their brand counterparts. According to the Department of Health and Human Services (HHS), Part D spent approximately $9 billion on brand drugs instead of their generic competitors in 2016. Those generics would have saved the system $3 billion in that year alone.


These troubling outcomes are likely due to the increasing trend of some Medicare drug plans preferring higher-cost brand products over lower-cost generics. In fact, since 2011, Part D plans have consistently shifted generics from generic formulary tiers with low patient cost-sharing to brand drug tiers with higher cost-sharing. This causes patients to unnecessarily pay nearly $4 billion per year more for generics whose prices are falling.


These trends not only cause patients to pay more for older generics that have seen price reductions, but they also threaten future generic competition. First generics approved by the Food and Drug Administration are critical to future competition, bringing prices that begin at 30% less than the brands and decline rapidly. But it takes three years for first generics achieve coverage on even half of Part D formularies. This blocks patient access to lower cost generics and forces them and the Medicare program to continue to pay for higher cost brands for far too long. Ensuring coverage and preferred formulary placement for new generics and biosimilars could save taxpayers more than $7 billion over the next 10 years and reduce premiums for seniors by more than $2 billion, while also lowering their out-of-pocket costs.


These trends are the direct result of the design of the Medicare drug program – particularly the Coverage Gap Discount Program (CGDP) and the manner in which the program treats brand drug rebates.


Created to help alleviate patient out-of-pocket costs in the coverage gap—also known as the “donut hole,” which temporarily limits what a drug plan will cover—CGDP requires brand drug manufacturers to provide 70% discounts on brand drugs dispensed in the coverage gap. Ironically, this measure creates an incentive for a plan to move a high-cost patient through the coverage gap and into the catastrophic phase of the Part D benefit more quickly. “Part D’s benefit design,” James E. Mathews, Executive Director of the Medicare Payment Advisory Commission, admitted this past April, “may contribute to growth in drug spending. The recent changes to the coverage gap, which further reduced plan sponsors’ liability, heighten those concerns” (italics mine).


Moreover, significant attention has been paid to the practice of brand-name manufacturers in providing substantial rebates to pharmacy benefit managers (PBMs) on the most expensive drugs. But these rebates also form a barrier to generic or biosimilar competition, a challenge noted by HHS Secretary Azar and former FDA Commissioner Gottlieb. In particular, the Medicare program allows plans to retain the bulk of those rebates – meaning that an expensive brand drug with high rebates may be more valuable to a health plan even if that costs Medicare more than a lower cost generic or biosimilar.


Patients on specialty medicines, defined by Medicare as drugs that cost more than $670 per month, are disproportionally impacted by these perverse dynamics that incentivize the use of more expensive brand-name drugs. While specialty medicines are taken by a relatively small share of Medicare patients, due to Medicare payment rules, they may be responsible for up to 33% of the cost of the drug until they reach the coverage gap. This is due to outdated Medicare policy that only allows for a single specialty tier with the same cost-sharing percentage for both the branded and generic or biosimilar specialty product. Despite their increasing availability, patients are limited in their ability to benefit from lower-cost specialty generics and biosimilars through lower cost sharing.


Policymakers can address these problems by taking common-sense steps to ensure that the Medicare program and seniors realize the full value of lower cost generics and biosimilars:

1. Ensure coverage of new lower priced generics and biosimilars;

2. Ensure placement of generics on generic tiers with lower patient cost-sharing; and

3. Create a dedicated biosimilar and generic specialty tier.


The Medicare drug program has played a critical role in improving the lives of countless seniors, but it is important to update it to reflect today’s marketplace. Policy solutions are needed to prevent a plan from preferring a higher-priced brand drug over a generic or biosimilar and to restore the appropriate incentives for plans to encourage patient use of lower-cost generics and biosimilars.