New Medicare Proposals Could Impact Biosimilar Competition
By Anna Rose Welch, Editorial & Community Director, Advancing RNA
The industry recently celebrated the launch of the highly anticipated FDA interchangeability guidance. Though I celebrated along with the rest, the guidance’s release unfortunately overshadowed the emergence of two proposals that could similarly benefit biosimilar competition. I’m referencing two Medicare Part B payment proposals put forth (separately) by the Medicare Payment Advisory Commission (MedPAC) and The Pew Charitable Trusts Center (Pew). (For those of you unfamiliar with the two organizations, MedPAC is a nonpartisan legislative branch agency that advises Congress on its Medicare program policies. Pew is a nonpartisan research and public policy organization.)
In early January, Pew published an issue brief, “Can Biosimilar Drugs Lower Medicare Part B Drug Spending?” A few weeks later, MedPAC presented its own thoughts on Medicare Part B Drug Payment Policy Issues at the January 13, 2017 Public Meeting. Though these proposals have their differences, the ultimate goal of both is to encourage competition between biosimilars and reference products, which would help with affordability for biologics.
It’s unclear how far these proposals will go, or if they will even result in Congressional action. But after speaking with Brian Lehman, manager of pharmacy benefits and policy for the Ohio Public Employees Retirement System (OPERS), I believe Pew’s and MedPAC’s suggested policy changes could better facilitate price competition between biosimilars and biologics, in turn lowering overall costs for biologics.
The Medicare Part B Controversy
The Centers for Medicare & Medicaid Services’ (CMS) Medicare Part B policy has led to widespread dissension from many different stakeholders, including patients, payers, government officials, and manufacturers. Because this policy groups all biosimilars for one reference product under the same J-code, or billing code, that is separate from the reference product, biosimilars will be left to compete amongst each other in terms of pricing.
Imagine a scenario in which we have six filgrastim biosimilars, including Zarxio. One competitor enters the biosimilar market with the low price of, say, $2,000 a month, which ultimately forces $3,000-a-month Zarxio (and any other more costly players) down to a lower price. Because the reference drug Neupogen has its own code, its price will not be brought down by these lower-cost biosimilars coming into the market. The only way the reference product could be impacted financially is if a health plan decided not to cover Neupogen at all — but that’s a utilization management move that isn’t currently permitted in Medicare.
Many biosimilar companies have responded to this policy by urging CMS to treat biosimilars as single-source drugs, or drugs that do not have generic or follow-on competition. This would mean each biosimilar would receive its own individual J-code, like the brand name drug. (Right now, they are being treated as multi-source drugs, or drugs that have generic/follow-on versions available.) In turn, biosimilars would not face the threat of a race-to-the-bottom in pricing as a result of having individual J-codes.
Unpacking Pew’s Suggestions
Pew presented two alternative approaches to improve biosimilar Medicare Part B policy: a consolidated payment rate and the least costly alternative (LCA) approach.
Under current Medicare Part B policy, providers administering a biosimilar are reimbursed at the average sales price (ASP) of the drug administered plus a 4.3 percent add-on of the reference product’s ASP. This identical add-on rate essentially places both the innovator and the biosimilar on similar footing. The doctor does not have a financial impetus to change patients from a biologic to a biosimilar, as both treatments offer the same add-on reimbursement rates.
A consolidated payment rate, on the other hand, would be a volume-weighted ASP of all brand and generic versions of a medicine. If this consolidated payment rate was implemented in the biologics, biosimilars, and interchangeable biosimilars realms, providers would be paid less for prescribing the more costly biologics and more for the lower cost biosimilars. However, in order for this option to work for biosimilars and to lower CMS’ Part B drug spend, providers would need to increase their use of biosimilars over that of the reference product. And, as we all know, there’s a lot of education that needs to be done to ensure high uptake.
Pew’s second proposal, the LCA, lowers the price of the high-cost therapy to that of a lower-cost treatment alternative. The LCA would not be an unfamiliar strategy for CMS. As Lehman describes, from 1995 to 2010, CMS used the LCA for drugs that produced the same health outcomes. But this policy was discontinued in 2010 following a Court of Appeals ruling because it went against Medicare law, which requires doctors to receive 106 percent of a drug’s ASP. That said, the U.S. Department of Health and Human Services Office of Inspector General has recommended that CMS pursue legislative authority to implement LCA for Part B drugs.
The LCA would work as such: Imagine Zarxio (filgrastim-sndz) costs $3,000 for two weeks of treatment of post-chemo neutropenia; Granix (tbo-filgrastim) costs $5,000; and Neupogen (filgrastim) costs $7,000. “CMS would say, ‘We are only going to reimburse $3,000 to the doctor, regardless of whether the doctor administers Zarxio, Granix, or Neupogen. The patient may have to pay the difference should they remain on the higher-priced biologic, or the doctor could absorb the cost difference,” Lehman explains. “This would highly influence the doctor to prescribe the lowest-cost medicine.” For one, prescribing the higher cost biologic would not provide a higher reimbursement rate. Similarly, this method could encourage the patient to ask for the lower-cost medicines if he/she is aware of the lowest cost option and responsible for paying any difference between the more expensive brand and the lowest cost option.” Ultimately, however, the LCA gives the physician the freedom to determine which treatment to use.
Consolidating Billing Codes: The Right Way To Go?
On the MedPAC side, the organization proposes two different methods of consolidating billing codes. One would involve grouping a reference biologic and its biosimilars in a common billing code.
The other option would be to group all biologics with similar health effects in a common billing code. (This could mean biosimilars, “biobetters”, and originator drugs.) Lehman turned to the small molecule space to explain the latter option, in which acid reflux treatments as advanced as proton pump inhibitors might be billed in the same code as cheaper and older (but still effective) first generation acid reflux treatments, like Pepcid and Zantac. Though, as Lehman admits, “A lot of work would be required for this, and it would take years to implement.”
This latter option, along with the LCA proposed by Pew, also presents the challenge of establishing a system for identifying products that are therapeutically comparable. “You really have to build an infrastructure behind the LCA and this consolidated billing code option in order to evaluate the comparative effectiveness of all the drugs being grouped together,” Lehman describes. This will also help physicians and patients know which treatments offer the best clinical profile for the cost.
Comparative effectiveness research would need to be carried out by a private or U.S. public agency (similar to the Institute for Quality and Efficiency in Health Care [IQWiG] in Germany), or by the manufacturers themselves. But regardless of who would be tasked with this work, establishing this infrastructure would be a significant investment and challenge.
Could These Recommendations Discourage Interchangeability Pursuits?
One of the biggest issues biosimilar makers have with current Medicare Part B policy is that it does not take into account interchangeability. As the Biosimilars Council stated in a position paper, competition between an interchangeable biosimilar and the reference product will be different from competition between a reference drug and a non-interchangeable. After all, the interchangeable biosimilar went through additional studies and a second FDA review. As such, the Biosimilars Council believes it would be especially inappropriate to group interchangeable and non-interchangeable biosimilars, which are not substitutable, together under the same J-code.
But both MedPAC’s and Pew’s suggestions move in a different direction than the Biosimilars Council and manufacturers. Their proposals involve grouping the reference product and interchangeable and non-interchangeable biosimilars together under a common billing code. As such, there would be more competition between the reference product and its biosimilars — both interchangeable and non-interchangeable. This competition would ultimately result in Part B drug savings. (It’s important to note that these MedPAC and Pew suggestions are often opposite of what many biosimilar manufacturers and the Biosimilars Council advise).
Though it’s impossible to determine how (or if) the Medicare Part B policies will change anytime soon, Lehman says if he were to have a crystal ball, he expects we’ll someday see interchangeable biosimilars and their reference products grouped together. The big question remaining is whether non-interchangeable biosimilars will be in billing code(s) separate from the reference product and interchangeables, or if all biosimilars regardless of an interchangeability designation will be grouped together with the reference product.
Though many have questioned how (or even if) interchangeability will play out in the hospital setting, Lehman suggests that grouping interchangeable and non-interchangeable biosimilars with the reference product could reduce manufacturer motivation to pursue interchangeability for their Part B drugs. Grouping them all together would ultimately mean an interchangeable would be competing in the same J code as non-interchangeables.
“From a payer and healthcare purchaser perspective, having biosimilars, interchangeables, and the reference product in a common billing code is appealing because it will likely increase price competition and help lower overall biologic drug spending,” Lehman describes. And the need for lower Part B spending has never been greater. For instance, CMS spent $22 billion on Part B drugs in 2015, which was more than double the amount spent in 2007. Similarly, OPERS more than doubled its 2010 spend on Part B drugs, shelling out $79 million in 2015.
Grouping interchangeable and non-interchangeable biosimilars with the reference product could certainly help CMS and other health care purchasers like OPERS realize more cost savings overtime. “But we need to monitor for the potential unintended consequence of discouraging some manufacturers from bringing more biosimilar and interchangeable biosimilar competition to the U.S. market,” Lehman says.