Unlocking the Rebate Trap: A Challenge for Biosimilars

An article published in JAMA Internal Medicine on May 1 caused a bit of a stir on the biosimilar blogosphere. The authors, from Yale University, posited that biosimilar manufacturers cannot win the rebate battle. And they are at least partly right.

Using a pretty extreme example of rebating/pricing and utilization in the biologic marketplace, they found that if 50% of patients switched to a biosimilar, the payer could be paying more money for the drug category in total compared with simply accepting the high prices and rebates of the originator’s manufacturer. Under the scenario set forth, the health plan or insurer would in fact not be saving the money expected, because of a so-called “rebate trap.”

In their example, the originator’s WAC was $50,000 and with a 50% rebate, the payer’s net cost was $25,000. The biosimilar, on the other hand, was priced at only $10,000. Based on 1,000 patients in total taking the autoimmune drug, they assumed that 50% of patients started using the biosimilar instead of the originator product. This would evoke the originator’s manufacturer to completely withdraw their rebates. The result is that the net cost on the remaining 50% who are still taking the originator product would now be $50,000 (not $25,000). That may be true; however, if the rebate no longer exists, what is the incentive for the health plan to cover the originator product? Without interchangeability in play, it may be difficult to switch patients, but with this price difference, payers will be motivated to exclude the originator. The decision of the originator drug manufacturer to not compete will make that decision much easier.

The example assumes an extreme discount on the biosimilar. It will be difficult to obtain such large discounts in an environment where 15% discounts on WAC are the norm. What is more likely is that the originator manufacturer will increase their rebate to prevent greater biosimilar utilization (at that more modest savings), resulting in some savings over the pre-biosimilar environment. Otherwise, the question is whether the originator drug maker will cut out their rebates altogether. Not likely, if they want to maintain significant marketshare. In addition, the introduction of multiple adalimumab biosimilars will likely blow up the existing market basket for the autoimmune category, which could redefine the way in which these agents are contracted.

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