Will Medicare Part D Make Biosimilar Manufacturers Pay?

By Anna Rose Welch, Editorial & Community Director, Advancing RNA

You’ve likely stumbled upon just as many stats as I have about how much biosimilars are expected to save global healthcare systems. Just a few weeks ago, in fact, IMS Institute for Healthcare Informatics forecasted that biosimilars would reduce healthcare spending by $110 billion in Europe and the U.S. by 2020. Well, now we have another estimate from Avalere Health, which recently released a report citing the Congressional Budget Office’s (CBO) estimates. According to the CBO, biosimilars will save the U.S. $25 billion over the next 10 years.

However, despite biosimilars’ reputation as cheaper alternatives to costly biologics, Medicare Part D patients likely won’t see great savings — at least not right away. Because of the way Medicare Part D is currently structured, patients will be responsible for covering 58 percent of the cost for biosimilar treatment. Avalere estimated that a typical Part D beneficiary taking a biosimilar would pay roughly $1,536 more annually than those sticking with the reference biologic. (This is based off the estimate that the originator biologic costs $30,000 a year, and that the biosimilar discount is 25 percent.) This is a 39 percent out-of-pocket spending increase compared to the brand biologic. The industry/patients are already approaching biosimilars with caution; taking an extra $1,500 a year out of a patient’s wallet to pay for them is likely to hinder uptake even more.

How Is This Spending Difference Possible?

The Medicare Part D plan covers both small- and large- molecule self-administered drugs. There are four phases of coverage: deductible, initial coverage, coverage gap, and catastrophic phases. The amount a beneficiary owes for their treatment depends on the phase. For instance, in 2016, the beneficiary has to have incurred $3,310 in total drug costs (including both plan and beneficiary contributions) to enter the coverage gap. To enter the catastrophic phase and qualify for a 5 percent cap on all beneficiary cost-sharing, a beneficiary has to spend $4,580 out-of-pocket.

Until 2010, beneficiaries were responsible for 100 percent of costs while in the coverage gap. However, the Affordable Care Act (ACA) is seeking to reduce the beneficiary cost-sharing percentage to 25 percent by 2020. As part of this effort, in 2011, the Coverage Gap Discount Program (CGDP) was launched. This program required drug manufacturers to provide patients with a 50 percent discount during the coverage gap. For instance, in 2016, patients owe 45 percent of the coverage gap for a brand medication. The plan pays 5 percent, and the manufacturer provides a 50 percent discount. By 2020, however, the plan and patient will each be responsible for 25 percent of costs, and the manufacturer will provide 50 percent. But when it comes to biosimilars, manufacturers are currently not required to contribute to cost-sharing. Current laws could keep biosimilar makers from voluntarily providing customers with point-of-sale discounts in the coverage gap due to the anti-kickback statute. Similarly, there is a chance these voluntary discounts would not count toward the total out-of-pocket costs. Without this discount, patients on the biosimilar will need to cover 58 percent of costs. (The plan will cover the rest.)  

Will Manufacturers Be The Solution To Higher Patient Costs?   

Avalere has suggested two different options for addressing this difference in price for biosimilars. Option one involves extending the CGDP to biosimilars. Manufacturers would be responsible for paying 50 percent of drug costs within the coverage gap. This assistance, in addition to the beneficiary and the plan’s contributions, would help the patient move more quickly toward the catastrophic phase and save money. This would also be the most cost-effective solution for the government.  

The second option involves creating a biosimilar tier. Rather than holding manufacturers responsible for financial assistance, the Part D benefit would be primarily responsible. This solution would require that patient costs for biosimilars remain below out-of-pocket costs for the reference products.

By Avalere’s calculations, however, the best option for patients would be the one that costs manufacturers more. For instance, in the face of lower patient out-of-pocket costs, the adoption rate of biosimilars is expected to reach 15 percent within the first year. After six years, the biosimilar adoption rate is expected to reach 60 percent. These figures come out slightly above the biosimilar tier option, through which the adoption rate would reach 10 percent after the first year and 55 percent after six years. (For more information about the methodology and key assumptions that led to these determinations, please refer to the full report.)

Avalere analyzed the biologics that accounted for the highest Part D costs. These drugs include Enbrel, Humira, Betaseron, Cimzia, Orencia, and Simponi. (Obviously, none of these are available as biosimilars in the U.S. yet.) For those receiving these treatments under Part D, the costs would total $22 billion from 2016 to 2025. Beneficiaries would be responsible for $3.6 billion of this, while manufacturers would contribute $1.5 billion. Part D plan contributions would total $16.9 billion. 

As Avalere determined through its report, the option requiring more financial support from biosimilar makers would lead to a (slightly) higher biosimilar adoption rate. Neither of the options presented is likely to become a reality without legislative attention and action. However, I anticipate the protocol for biosimilars to be similar to that of reference products, though the high discounts could lead to some manufacturer pushback. The biosimilar industry is currently fighting CMS on its reimbursement policy because the policy could deter companies from investing in biosimilar development. Similarly, high manufacturer discounts could serve as a disincentive for manufacturers looking to enter the biosimilars ring. That said, there are already some biosimilar companies expressing willingness to offer voluntary discounts, Avalere's Caroline Pearson tells STAT. However, because it would be considered a violation of the anti-kickback law, Congress will need to step in to reverse this "backwards incentive" in Medicare. 

As increasing drug prices draw more pressure from patients and payers, larger manufacturer discounts seem to be becoming a staple of the times. According to STAT, drug spending increased 8.5 percent in 2015, despite the fact brand-name drug prices only rose roughly 3 percent — the smallest price increase in the past four years. (This is net price, including the rebates and discounts manufacturers provide.) This suggests, according to IMS Health Institute Executive Director Murray Aitken, that pharmacy benefit managers (PBMs) and insurers are succeeding in pushing back on prices. “It reflects a shift in market dynamics. Drug manufacturers are accepting lower price increases on existing products, and, in some cases, there’s heightened competition,” Aitken said. If we expect to see continued attention to lowering prices, it’s likely we’ll also see efforts to cut down on Medicare Part D patient costs for biosimilars. And this help will likely come from biosimilar makers.