BCHT PHARMACEUTICALS RESEARCH — OVERVIEW
What are biopharmaceuticals?
Why are biopharmaceuticals important?
How are biopharmaceuticals brought to market?
How are private health plans managing biopharmaceuticals?
Biopharmaceuticals hold great promise for treating some of the most intractable medical conditions, such as cancer and autoimmune diseases, but they also come with high prices and raise questions as to their appropriateness for conditions beyond those for which they have been tested. Balancing the incentives for innovation and appropriate use of these drugs is one of the fundamental social questions that the BCHT seeks to address.
What are biopharmaceuticals?
Biopharmaceuticals are therapeutic agents intended to treat symptoms and/or underlying causes of a variety of disorders and diseases. The primary difference between biopharmaceuticals and traditional pharmaceuticals is the method by which the drugs are produced: the former are manufactured in living organisms, such as bacteria, yeast, and mammalian cells, whereas the latter are manufactured through series of chemical syntheses.
Why are biopharmaceuticals important?
BIO, the biotechnology industry's trade group, estimates that over 400 biopharmaceuticals are currently in clinical trials for over 200 diseases, some of which currently do not have treatments. In the past five years, the FDA has approved biopharmaceuticals for an increasing range of conditions. As a result, expenditures on biopharmaceuticals have more than doubled, from $35 billion in 2004 to $73 billion 2008. Autoimmune and oncology drugs make up 46% and 17%, respectively, of the biopharmaceutical product sales today. The revenues generated from the sales of today's generation of drugs encourage biopharmaceutical companies to invest in research and development for tomorrow's generation.
How are biopharmaceuticals brought to market?
Biopharmaceuticals are primarily developed in both academic and industrial laboratories. The commercialization process is often funded by venture capital firms (for academic and start-ups) or drug companies. Prior to sale, drugs are assessed by the Food & Drug Administration (FDA) and other international regulatory agencies for safety and efficacy.
Physicians seek to prescribe the most appropriate therapy for their patients, based on their training and experience. In contrast to traditional pharmaceuticals, which patients can administer themselves, some biopharmaceuticals must be directly administered by the clinician, due to reasons of toxicity or fragility. Others may be self-administered, either by injection or orally. Biopharmaceuticals are purchased through a variety of distribution channels, each with different levels and forms of payment. In some cases, post-market studies are performed to survey for long-term or unforeseen adverse events, and drug companies may reassess their biopharmaceutical products for redesign or rebranding.
Biopharmaceuticals are costly to research, develop, manufacture, and, in some cases, administer. As a result, the drugs bear high price tags. Intermediaries, such as pharmacy-benefit managers and hospital group-purchasing organizations, negotiate prices with drug manufacturers on the basis of volume and other factors, and then sell these drugs to individual hospitals, health plans, physician practices, and pharmacies.
How are private health plans managing biopharmaceuticals?
The accelerating demand for and use of these drugs has placed increased pressure on health plans to evaluate whether the drugs are being prescribed appropriately. In response, health plans have adopted multiple strategies to manage biopharmaceutical use at the physician, manufacturer & distributor, and consumer levels.
In contrast to their more restricted roles for traditional drugs, physicians often are responsible for administering as well as prescribing biopharmaceuticals. Large oncology and rheumatology practices frequently purchase these drugs from distributors or manufacturers. These drugs are administered to patients during office visits, and claims for reimbursement are submitted to the patients' health insurers. This creates a potential conflict of interest in that physicians are paid not merely for their professional services but also for the price markups they impose on the drugs that they purchase, often referred to as "buy and bill." Depending on the drug and condition, health plans have begun imposing requirements for prior authorization before prescribing, limits on "buy and bill" reimbursement, and limits on reimbursement for off-label prescribing.
Current strategies to manage spending on biopharmaceuticals at the manufacturer and distributor level include usage of specialty pharmacies for distribution, and price negotiations based on formulary placement. As patents on biopharmaceuticals expire, health plans intend to encourage the use of biosimilars over more costly branded drugs.
In order to manage the costs of biopharmaceuticals from the consumer side, health plans have implemented cost sharing and care management. By shielding patients from the true costs of health care, health insurance may inadvertently encourage the use of drugs that have high unit prices accompanied by high administrative costs. Tiered formularies separate drugs by price level and enable individuals to select between different drugs with costs in mind, while still offering all pharmaceutical treatment options. Some health plans have included biopharmaceuticals as a fourth tier to traditionally three-tiered plans, with the requirement that patients pay a percentage of the total drug costs. This co-insurance places a greater financial burden on the patient, as coinsurance costs are often higher than the fixed dollar copayments that are typically used in tiered drug plans.
For more information about the methods by which some health plans manage the costs of biopharmaceuticals, please read Dr. Robinson's article in Health Affairs.
