Panel Examines Medicare Spending on Rx Drugs

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By Bronwyn Mixter

Oct. 8 — The Medicare Payment Advisory Commission (MedPAC) is concerned about the impact of drug costs on the federal treasury and out-of-pocket costs for Medicare beneficiaries, Francis J. Crosson, chairman of MedPAC, said Oct. 8.

Crosson said MedPAC needs to have a clear understanding of the pharmaceutical industry and drug costs. “We have been working on drug costs for more than a year and we will continue to do so,” he said.

At its Oct. 8 meeting, the commission heard a staff presentation on factors affecting Medicare drug spending.

Biologics, Biosimilars

Rachel Schmidt, a MedPAC staff member, said there are two categories of prescription drugs, which include small molecule drugs and biologic drugs.

Small molecule drugs are synthesized through a chemical process and can be replicated exactly, Schmidt said. Biologic drugs are large molecules synthesized from living tissue and exact copies can't be made.

The Biologics Price Competition and Innovation Act, part of the Affordable Care Act, established a pathway for the approval of generic versions of biologic drugs, called biosimilars, Schmidt said. The Food and Drug Administration approved the first biosimilar drug in March, she said.

On March 6, the FDA approved Novartis AG's biosimilar version of Amgen's cancer drug Neupogen (filgrastim) (13 PLIR 351, 3/13/15). Novartis's Sandoz unit launched the drug, called Zarxio, on Sept. 3 (13 PLIR 1298, 9/11/15). The market launch of Zarxio was delayed after FDA approval due to litigation between Sandoz and Amgen.

Schmidt said traditional generic drugs lower drug prices more than biosimilar drugs. She said biosimilars cost more to develop.

The Congressional Budget Office has estimated that biosimilars will cost 20 to 40 percent less than their reference drugs, Schmidt said. However, Medicare's payment rate for Zarxio is currently only 3 percent lower than Neupogen, she said.

Schmidt said Medicare doesn't yet have average sales price data for Zarxio and that once it does, the cost of Zarxio is expected to go down.

Specialty Drugs

Schmidt also said the high launch prices for new specialty drugs is a challenge for Medicare and other payers.

“Wider use of specialty drugs could lead to higher premiums,” she said.

Recent drug approvals affecting Medicare, include approvals for hepatitis C therapies, drugs used to treat familial high cholesterol, a heart failure therapy and a long-acting insulin.

Factors Affecting Drug Prices

Shinobu Suzuki, another staff member, said drug prices are affected on the demand side by several factors, including:

• the shift from private to public insurance;

• consolidation in the insurance industry;

• discounts and rebates mandated by law; and

• increases in demand as a result of an aging population.

Suzuki said that on the supply side, drug prices are affected by:

• the increasing complexity of biopharmaceutical products;

• the emphasis on treatments for smaller disease populations, often with few competing therapies;

• the cost of borrowing money;

• patent and temporary monopolies granted by the government;

• consolidation and/or specialization within the biopharmaceutical industry; and

• changes in the drug supply chain.

To contact the reporter on this story: Bronwyn Mixter in Washington at

To contact the editor responsible for this story: Brent Bierman at

More information on the meeting is available at