Illustration: Rae Cook/Axios
The generic drug industry is warning that Democrats' drug pricing legislation would undercut their ability to compete against brand-name drugs, and some experts say they have a point.
Why it matters: Generic drugs and biosimilars are America's most effective way of exerting downward pressure on drug prices, and keeping this competition healthy would remain vital even under the Democrats' new system.
The big picture: The Democrats' plan to allow Medicare to negotiate prices is focused mainly on lowering the prices of drugs before they have competition.
- The big question is whether tinkering with pricing in this phase would disrupt market dynamics post-competition — or whether it'd deter competition in the first place.
- The generic market, aside from some outliers, is generally very effective at controlling costs in the U.S., and most drug pricing ire is focused on drugs without competition.
What’s the context? "Generally: I think there is some uncertainty about how proposed rate regulation will affect the generic and biosimilar markets," Ben Ippolito, a senior fellow in economic policy studies at the American Enterprise Institute, told Axios.
How it works: The bill passed by House Democrats would allow Medicare to negotiate the prices of drugs without competition after they'd been on the market for a certain period of time.
- It would also prevent drug companies — brand or generic — from raising prices faster than inflation in both Medicare and the commercial market, although it's unclear whether applying the limit to the commercial market will comply with Senate rules.
What they're saying: The generic industry says that both of these components are problematic.
- "Biosimilar development could be forestalled for dozens of medicines. The overall effect would be more branded drugs maintaining their monopolies for longer," Dan Leonard, president and CEO of the Association for Accessible Medicines, wrote in STAT last month.
- "To be blunt, generics and biosimilars offer greater savings potential than this short-sighted policy change," he added.
Between the lines: The Medicare negotiation provision could undercut generic drugs' competitive advantage, as they'd have to price even lower to attract enrollees away from branded drugs once they enter the market.
- This could be especially problematic for biosimilars, which are more expensive to produce than small-molecule generics.
- And limiting generics' price increases to inflation could also be harmful to the industry, as generics generally have very low margins and are sensitive to the cost of inputs.
The other side: Some experts are skeptical of the industry's argument.
- "I can't see why we'd expect anything to change since the post-competition market dynamics are the same as they are today," said Loren Adler, associate director of the USC-Brookings Schaeffer Initiative for Health Policy.
The bottom line: "The goal in reducing drug spending is to get more generics and biosimilars to the market faster, and generic manufacturers need to make money for that to happen," said KFF's Larry Levitt.
- "This is a matter of striking a balance between curbing egregious pricing practices and maintaining a profitable generic industry."