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Medicare biosimilar reimbursement: Hopes for cost savings, a dream deferred

Mimi Chen

Biosimilars are supposed to save us money, but whose money are they saving?

Recent updates to the Medicare reimbursement policies, the passage of the president’s Bipartisan Budget Act of 2018, and analyses of these changes from various consultants have unveiled the chaos that is biosimilar reimbursement.

Catch me up to full speed

Let’s start with the basics. In the outpatient setting, Medicare Part B reimbursement for provider-administered drugs is often based on the average sales price (ASP). Medicare typically pays the provider ASP + 6% (aka 106% of ASP) of the drug. Because there is often a two-quarter lag between a new product launch and published ASP data, payers may rely on the wholesale acquisition cost (WAC) until the ASP figures become available. The WAC is often higher than the ASP because it doesn’t take into account discounts and rebates. So for the first two quarters of a product launch, Medicare reimbursement for the same product may be higher. To counter this increase, the president’s FY2019 budget proposal suggested that starting next year, reimbursement based on WAC be reduced from 106% WAC to 103% WAC.

So what’s new with the Part B reimbursement?

A biosimilar is reimbursed at its own ASP plus 6% of the reference product’s ASP. This gives providers a small but noteworthy incentive to use a biosimilar. In the past, the CMS grouped all biosimilars under one HCPCS code, which meant biosimilars couldn’t be distinguished from one another and only competed against the reference product. However, starting this year, CMS started issuing a unique HCPCS code for each biosimilar of a reference product. The idea was to encourage price competition among biosimilars, and not just between the biosimilars as a group and the reference product.

Reference product reimbursement = Reference ASP + 6%
Biosimilar product reimbursement = Biosimilar ASP + 6% of reference ASP

But here’s a plot twist. In 2018, new reimbursement to 340B facilities for all products is ASP minus 22.5%, a departure from the reimbursement of 106% ASP.

This seems to be in response to an issue that was plaguing payers that our very own Krishna Patel discussed in another post. Essentially, 340B facilities were receiving a windfall of profits by being able to purchase drugs with heavy discounts averaging 20%-50% while being reimbursed at the original list price, but CMS has finally caught up to this little trick by reimbursing them at ASP – 22.5% instead of at ASP + 6%.

An additional interesting point is that this new rule applies to all drugs except drugs with pass-through status. Pass-through status is granted by CMS for up to three years to encourage innovation and use of new technologies by providing additional payment to providers who use these new drugs.

Under the new rule, biosimilars are also eligible for pass-through status. This means that, if biosimilar manufacturers apply for pass-through status (which they all should, to encourage their product use among these providers), the new reimbursement in 340B facilities will work out like so:

Reference product reimbursement = Reference product ASP – 22.5% (the new 2018 reimbursement)
Biosimilar product reimbursement = Biosimilar ASP + 6% (the rate for drugs given pass-through status)

The disparity is astonishing.

Biosimilars are supposedly the same but a cheaper product than the reference biologic in clinical practice, yet this quirk in the reimbursement means they will be reimbursed at a much higher rate. Pass-through status for biosimilars will work to the advantage of their manufacturers and providers who are willing to prescribe them.

But patients? The 20% coinsurance rate is based on the higher reimbursement rate. Would you like to pay more for a generic drug that is identical to the brand product?

Adam Fein, a consultant and author of the closely read Drug Channels blog, goes into really great detail of how that plays out.

Furthermore, what happens after the pass-through status expires? Will providers keep switching patients to new biosimilars with the pass-through status for higher reimbursement? That might have a worrisome clinical implication. It could also be an area of further research, potentially for switching studies among a number of biosimilars.

What about the Part D reimbursement?

The new budget act does, however, level the playing field between biosimilars and their reference products in one area: cost-sharing in the Part D coverage gap, also known as the “donut hole.” To expedite the closure of the coverage gap in 2019, the patient coinsurance will be reduced from 30% to 25% of the reference product. It would also increase the discount contributed by manufacturer from 50% to 70%. Biosimilars would be treated the same as the branded product. Previously, a beneficiary would have been responsible for 37% of the biosimilar cost in 2019 instead of 25%. With the new policy, the biosimilar manufacturer would also be responsible for providing a 70% discount when they previously had no obligation to do so as “generic” drugmakers. The steep discount may deter future marketing of Part D biosimilars in the US.

At the same time that biosimilars are being treated like their brand counterparts, they are also still being perceived as “generic.” For example, another proposed change in the FY2019 budget is to eliminate cost-sharing for generics including biosimilars for low-income Medicare beneficiaries. This seems like a pretty big cost for the Medicare program to swallow since biosimilars are usually only 15% less expensive than their reference products.  

So who wins and who loses with all of these changes? That’s hard to say. Because of the complexity of the reimbursement landscape, payers, providers, manufacturers, and patients will need to dive in to get the best deal and be unafraid of all of the details. Easier said than done, of course.

A few years ago, biosimilars seemed ready to follow in the footsteps of generics and save the health care system a great deal of money. Now they are getting ensnared in the brambles of our complicated reimbursement system.

When will we finally see the true cost savings potential of biosimilars? We’ll have to see how this all plays out.

Mimi Chen, PharmD, is a medical writer in the Access, Commercialisation & Communications division of Icon plc.