Senator Charles E. Schumer

FOR IMMEDIATE RELEASE: September 24, 2009

SENATE PANEL APPROVES SCHUMER AMENDMENT TO TREAT GENERIC VERSIONS OF EXPENSIVE BIOLOGIC DRUGS THE SAME AS BRAND-NAME VERSIONS UNDER MEDICARE

Measure, Included in Senate Finance Committee's Health Care Reform Bill, Could Save Medicare More Than $1B Over Ten Years

Proposal Means That When Generic Biologics Enter Marketplace, Physicians Will Be Reimbursed The Same No Matter Whether They Prescribe Brand-Name Or Generic Versions

WASHINGTON, DC – On the second day of the Senate Finance Committee’s consideration of a landmark health care reform bill, the panel unanimously approved an amendment from U.S. Senator Charles E. Schumer (D-NY) that would reimburse physicians by the same amount no matter whether they prescribe brand-name versions of biologic drugs or generic versions. Schumer said the measure could save Medicare over $1 billion over ten years once generic versions of these drugs, used to treat diseases like multiple sclerosis and arthritis, are approved by the FDA.

“This measure will end the perverse incentive for doctors to prescribe more expensive drugs when generic versions are freely available,” Schumer said. “The potential savings to Medicare from this amendment could be huge.”

Biologic drugs are made from living cell cultures, rather than synthesized chemically. They are among the most expensive varieties of pharmaceuticals on the market, but generic versions of these drugs—known as “biosimilars”—are rare because the Food and Drug Administration (FDA) currently lacks a formalized process, or “pathway,” for approving them. Biosimilars have the potential to provide a low-cost alternative to their more expensive brand-name counterparts once a pathway is approved. According to the Congressional Budget Office, biosimilars are expected to be priced at an average discount of 40 percent compared to their brand-name equivalent.

Even after an approval pathway is created for biosimilars, they would have faced a disadvantage because current Medicare reimbursement rules still favor brand-name biologic drugs. Schumer’s amendment eliminates the disincentive. Under current Medicare Part B law, when a drug is prescribed for a Medicare patient, the government pays the provider the average sales price, plus a six-percent administration fee. This formula discourages the prescribing of a low-cost biosimilar, since the six-percent administrative fee would be lower than it would be for the brand-name drug, whose average sales price is higher.

Schumer’s bill would require that the administrative fee to be the same no matter whether which type of drug—the brand-name version or the generic—is prescribed. This will remove incentives for a provider to prescribe more expensive therapies to patients. By leveling the playing field with respect to the doctor’s decision about which drug to administer, this amendment will ensure that the Medicare program and seniors get the most cost-effective treatment available. According to an analysis conducted for the CBO, Schumer’s amendment would deliver savings of $148 million for each percentage point increase in utilization of biosimilars. Assuming a modest increase in market share of 5-7 percent, the total savings could approach or surpass $1 billion over 10 years.

But these savings will only accrue if a separate provision is passed that would allow biosimilars to come to market. Schumer, therefore, continues to push for the health care reform bill to establish a sensible approval pathway for biosimilars, as called for by his bill, which is co-authored by Sen. Susan Collins (R-ME). The Schumer-Collins legislation would allow biosimilars to enter the market five years after a brand-name version. The Senate HELP Committee, the panel of jurisdiction on this issue, adopted a 12-year standard this past summer. Schumer has vowed to fight to reduce the exclusivity period on the Senate floor.

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