Regulating drug prices in Medicare unlikely to lead to ‘revenue targeting’

Biosimilars/Research | Posted 22/04/2022 post-comment0 Post your comment

A report from the American Enterprise Institute (AEI) suggests that regulating drug prices in Medicare is unlikely to lead manufacturers to compensate by increasing revenues from the commercial market, based on analysis of similar events in the European Union (EU).

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A report published by AEI, a Washington DC-based think tank, investigates whether regulating drug prices in Medicare might lead manufacturers to increase revenues coming from the unregulated, commercial market.

The report follows intense debate about whether the US federal government should regulate drug prices in Medicare. Some have argued that regulating prices only within the Medicare market would lead manufacturers to compensate by increasing revenues from the commercial market, known as ‘revenue targeting’.

To investigate this, AEI explored how manufacturers responded in a similar situation in the European Union (EU), where manufacturers lost revenues following biosimilar entry but maintained monopoly rights in the US.

They investigated biological drugs with biosimilar entry in the EU between 2008 and 2018, excluding cases where US biosimilar entry occurred less than one year after EU entry.

When a biosimilar did eventually enter the US market, analysis was restricted to the time before this happened. The authors also excluded biologicals sold by different manufacturers in the two markets; that did not have revenue information separately available for domestic and international markets; and insulin products.

The final analysis included Herceptin (trastuzumab), Humira (adalimumab), Neupogen (filgrastim) and Rituxan/MabThera (rituximab).

The results showed that biosimilar entry into the US market clearly reduced international revenues for the originator biologicals. Despite this, the authors found little evidence of compensatory revenue increases in the US market (where manufacturers retained monopoly).

The authors say this suggests that drugmakers ‘currently use the full extent of their negotiating leverage’ and that it is unlikely that manufacturers in the US would offset revenue losses caused by Medicare rate regulation by increasing revenue in the commercial market.

However, it is important to note that this analysis is based on only four biologicals and the authors cannot rule out the fact that other manufacturers might behave differently.

They also say the analysis cannot assess the possibility that market-specific revenue reductions could have longer term and indirect cross-market effects. In addition, the setting considered in this report (the EU) differs from settings where prices are explicitly linked across markets, e.g. in reference pricing models. The authors say that in these settings, policies in one market could directly affect outcomes in others.

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Source: American Enterprise Institute

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