Guest Column | December 6, 2018

Biosimilar Coverage By The VA — What You Need To Know

By Cheryl Nagowski, senior director, Federal Markets D2 Consulting

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Merck’s recent announcement that its infliximab biosimilar, Renflexis, was awarded a U.S. Department of Veterans Affairs (VA) national contract has sparked curiosity about the potential influence this might have on biosimilar adoption and formulary preference in the rest of the market. Renflexis was determined to be the lowest-priced infliximab proposed under a competitive solicitation and, as such, was awarded preferred use as the only infliximab option covered on the VA National Formulary (VANF).

In order to understand the importance of this recent development, it’s necessary to understand how the VA formulary is constructed. The VANF consists of three tiers - preferred generic, generic, and brand, with the majority of drugs covered on the formulary being generic. Though there may be sole-source or brand products found on the formulary, a majority of brands are not placed on the formulary. In some cases, a brand biologic that is self-administered — for example, Humira and Enbrel — can be found under the brand tier of the VA formulary; however, this is a rare occurrence. Typically, products with generic equivalents or therapeutic interchange will compete with supplemental discount offerings for first-line coverage, becoming the only product in a class listed on the formulary. Similarly, a biosimilar would be placed on this formulary as a brand, as opposed to a generic or a preferred generic. This was the case for Merck’s Renflexis.

Though many manufacturers strive to be placed on the VA formulary, it is just as critical — if not more critical — to ensure there is an established clinical guidance for prescribing known as a “criteria for use” (CFU). The CFU, which is established by the VA’s Pharmacy Benefits Management (PBM), lays out the pathways for utilization. For example, the CFU for a specialty product will always specify which specialists are permitted to prescribe that therapy. In addition, there can be anywhere from one to two or as many as five to seven criteria in a drug’s CFU. Ensuring a CFU is in place is key to ease of access for branded products.

In fact, many pharmacists consider a CFU for a specialty product just as meaningful as formulary coverage since even covered drugs must have and abide by a CFU before they can be administered. The VANF is the sole drug formulary used in the VA; however, if a national CFU is not established, local VA medical centers (VMACs) or regional Veterans Integrated Service Network (VISN)-level CFUs may be developed.

While Renflexis is the first formally covered biosimilar on the VANF, two other biosimilars have established CFUs in place. As we start to consider biosimilar adoption in the VA, it is important to understand the context for access and reimbursement in this health system. With that, reasonable assumptions can be made about the extent of influence the VA’s first-line utilization of biosimilars may have on the rest of the payer market.

Table 1: Cost Comparison of Biosimilars in the VA with Formulary Coverage or Established CFU

Specialty Products In The VA

By law, the VA has statutorily mandated access to favorable drug pricing and uses formulary preference in competitive markets to negotiate further discounts. Unlike the Department of Defense healthcare system, where two-thirds of care is provided in the community physician setting, the majority of VA care is provided within its own integrated system. The VA operates over 150 VA medical centers (VMACs) and 1,200 VA community outpatient clinics.

Office and hospital administered products are ordered from the VMAC pharmacy for administration and are subject to the statutory discount mandated by Public Law 102-585, which generally equates to a minimum of 26 percent off the wholesale acquisition cost (WAC). Products approved and marketed under an NDA or BLA (as well as authorized generics and biosimilars) are subject to this statutory requirement for the life of the product, even after loss of exclusivity.

It is also important to note that the limited three-tier structure of the VANF does not provide a specialty tier for high-cost drugs. Veterans are not subject to large co-pay fluctuations based on the formulary tier of the drug, nor are they subject to cost sharing. Instead, veterans are classified into one of eight priority groups by a disability rating, with no copay for those in priority group one and nominal copays for all others (maximum branded product copay is $11).

Key Challenges Resulting In A Push For VA Biosimilar Preferred Use

While the VA enjoys favorable pricing not seen elsewhere in the market for any biologic administered in the integrated channel of care to its beneficiaries, it must absorb all of the remaining costs. Therefore, it is desperately trying to get a handle on the unique challenges that exist with regard to specialty drug prescribing and utilization. The VA remains challenged in providing a high volume of care on restricted congressionally-designated budgets. The VA is also an and/or payer, meaning an enrollee must choose to either bill the VA benefit or their private insurance/Medicare Part D benefits for a claim. As such, VA benefit engagement can be unpredictable. Current statistics reveal the VA benefit is engaged by roughly 64 percent of enrollees on an annual basis, with the remaining enrollees utilizing other sources of care for coverage. All of these factors have led the VA to procure a good deal of specialty physician care from community providers on a part-time basis.

For instance, many oncologists treat at various VMACs one or two days per week. These physicians are typically given a great deal of latitude with regard to prescribing. While VA pharmacy chiefs fully vet all non-formulary selections, “unofficial” protocol often comes into play with regard to specialty product deviations for these providers with limited pushback.

The health system understands the cost involved in alternative means of care, such as sending a beneficiary to a specialty in a VMAC 50 miles away to see a full-time VA specialist or re-procuring a new part-time community provider. As such, there are a few changes underway. Recent legislation, known as the VA MISSION Act, aims to expand VA community care. This new act will allow enrollees to go into the community for their care regardless of how far away they may live from their VA hospital. (A previous law required a member to live at least 40 miles away from the VA hospital in order to visit a community physician.) The act also lays out the same reimbursement timeline as Medicare Part D for the clinics visited by VA benefit enrollees.

Though this act has yet to be fully implemented, it poses some benefits for the treatments that are preferred on the VA formulary. For instance, as more VA enrollees venture into the community for their care, it’s expected we’ll see an increase in use of the VA benefits because there is no cost-sharing for specialty drugs (and minimal co-pay depending on a veteran’s disability rating). In turn, the more VA enrollees being treated in the community using their VA benefits will bolster the formulary’s influence in the community setting. Though, in the past, specialists hired by the VA had more leeway to prescribe their preferred therapies regardless of VA formulary status, opening up the physician network more widely will provide greater access to physicians that will abide by that formulary. However, this transition to the VA formulary will be a steep learning curve for community physicians. As such, this is expected to further complicate VA formulary control, and the cost involved in adjudicating non-formulary requests from community physicians is expected to take a toll on the operational limitations of the health system.

Looking Ahead

Biosimilar developers have made it clear that highly integrated systems like the VA are key targets for fast adoption of biosimilars. These closed systems acting as both the insurer and provider are expected to embrace biosimilars as first-line therapies and set the tone for the rest of the payer market.

The VA in particular seeks to better control the use of specialty products due to the unique complications noted above. The VA is often cited as a model for the Center for Medicare and Medicaid Services (CMS), and favorable coverage is often leveraged for promotion, as seen with the widespread Merck announcements regarding the VA’s first-line designation of Renflexis.

At minimum, specialty physicians treating VA patients will have exposure to preferred biosimilars and potentially develop a greater level of comfort with biosimilar utilization. These specialty physicians are often key opinion leaders in the community setting and stand to potentially provide widespread spillover with regard to prescribing comfort. Commercial payers, particularly other integrated networks, will be watching and waiting, allowing the VA to take on the initial risk before implementing their own first-line use of biosimilars.

About The Author:

Cheryl Nagowski is senior director of federal markets at D2 Consulting. She has a diverse life sciences background, ranging from commercial managed care formulary bidding to state to federal government contracting. As a former government contracting officer, her background includes successfully negotiating both for and with the federal government. Currently, she is responsible for leading federal market access and reimbursement activities for pharmaceutical, biopharmaceutical, and durable medical equipment manufacturers. Her specialties include advising on drug launch, market access, supplemental contracting strategy development and negotiation, Federal Supply Schedule management, and a wide range of compliance and regulatory concerns.