Exploring Drug Costs

Why Biologic Drugs will Continue to Be Overpriced

It is common knowledge that Drug prices have been rising quickly over recent years. Biologics are of particular note when price is involved due to the lack of a Generic alternative. It was the hope of most people that track Drug prices, that the invent of Biosimilars would have the same impact to the price of Biologics that Generic substitutes had. Unfortunately this has not occurred.

One of the main reasons is PLAs. PLAs are pricing agreements that insurers enter with pharmaceutical firms to get preferred pricing in exchange for exclusivity. These are typically in the best interest of both parties entering them, but not in the best interest of all other parties. That is these agreements keep Drug prices high, while providing savings to the insurance company.

The reason is that PLAs will be set at prices that are substantially higher than the price of alternative Biosimilars. The reason pharmaceutical firms are able to set the price so high, is that the insurance company has a block of covered certificates (people) that are already on the Biologic Drug. As these certs cannot be moved onto the new Drug, the majority of the expense to the insurance company is stuck with the old, higher priced Drug.

The insurance company saves more money agreeing to slightly reduce the price for the large number of certs already taking the old Drug, than they do from covering new claims at the cheaper new Biosimilar Drug. This makes it difficult for the new Biosimilar Drug to gain market share, and makes it unprofitable to develop new cheaper Drugs.

Dahlsom