Health Affairs: Abandon Biosimilars as Biologics are Natural Monopolies
Together with Mark Trusheim of MIT Sloan School of Management and Preston Atteberry, MD, the Drug Pricing Lab team articulated why biosimilars are not and will not effectively lower the price of biologic drugs after the period of market exclusivity. In articles published by HA Blog and covered by StatNews, they explain that this failure is predictable because biologic drugs hold natural monopolies in the market, not artificial ones. In the setting of a natural monopoly, price regulation, not competition, is the preferred approach to lowering prices after exclusivity. The authors propose abandoning biosimilars and instead imposing price regulation on the innovator firms after exclusivity. They propose a formula that includes production costs plus a healthy profit for those firms to continue to supply the market place, and if they do not then they must handover all of the ability to do so to another firm. This type of ‘cost-plus’ reimbursement is already in place in other areas of Medicare where production at marginal cost is expected, such as reimbursement for hospital care. Switching to their approach would have a one-time transition cost of $10-$20 billion but would yield $250-$300 billion of US net savings over five years, including more than $87 billion for Medicare and Medicaid.