Biosimilars In The Hospital Market, Then And Now: Addressing The Challenges
By Fred Pane, VP, Pharmacy Services, and Interim VP, Supply Chain, Coordinated Health
About 12 years ago, while working at a group purchasing organization (GPO), I had my first conversations with pharma/biotech companies about the possibility of developing and launching biosimilar drugs. Part of my role at the GPO was related to tracking and commenting on policies CMS and the FDA were developing. Hence, the FDA’s biosimilar approval pathway and the proposed development of the Purple Book (similar to the Orange Book for small molecule and injectables) were of great interest to me, as was how CMS would recognize these drugs for reimbursement with a separate Healthcare Common Procedure Coding System (HCPCS) or combined HCPCSs.
My initial discussions with pharma/biotech companies focused on many things: indications for use (Would they have the same ones as the innovator/brand products?), what type of clinical/outcomes/efficacy studies they believed were needed, if they believed the FDA would require efficacy and safety studies, and should they do randomized control studies of the innovator/brand versus their biosmiliar and, if so, how many patients would be statistically significant to achieve formulary status for the biosimilar versus the innovator/brand. We also discussed cost and contracting models. I had worked in hospital practices for many years, sat on and chaired pharmacy and therapeutics (P&T) committees, developed a formulary for an integrated delivery network (IDN) and self-insured employee health plan, and measured outcomes associated with drugs. We had detailed conversations on the needs of the various end users, along with the FDA and payers. We discussed that these drugs were not typical generic drugs (small molecule) but are “branded generic drugs” and would need to be launched and promoted as such. They would have their own names and require medical science liaisons (MSLs), an educated sales force, and an understanding of the payer landscape. During the discussions, I mentioned that a discount of 20 to 30 percent would be needed. If you understand the manufacturing process of these drugs, you understand the pricing and how low it can go. We discussed current treatments and if one would keep a patient on the innovator product if they had no clinical or safety issues versus newly diagnosed patients where the biosimilar could be used. In the hospital, we made therapeutic/automatic substitutions regularly, but most of these drugs were used in outpatient settings of care or even self-administered and had different reimbursement/insurance models.
Lastly, we wondered if it would be necessary to develop a different contracting model focused on outcomes and value for biosimilars as opposed to the standard volume/market share contract, where certain clinical metrics could be measured as well as safety. One example would be looking at how fast a patient on a biosimilar focused on chemo-induced anemia achieved a therapeutic hemoglobin?
We now have a better understanding of what biosimilar companies need to present to physicians, patients, and payers. The regulatory pathway is better understood, and there is growing understanding and acceptance of biosimilars around the world. However, I see a number of troubling dynamics in the contracting processes of third-party payers and IDNs/GPOs. In this article, I’ll unpack how these two parties typically contract for biologics and biosimilars, some of the challenges that arise because of these contracting practices, sites of patient care, and how biosimilars can be better prepared to negotiate and enter these channels.
Payers Vs. IDNs/GPOs: Contracting Practices And Why Biosimilars Are Struggling
Much of what we discussed 12 years ago has come to fruition with respect to pricing and the need to work with GPOs, IDNs (especially those that manage their own health plans and population health), and payers. An issue we didn’t discuss was how most biosimiliars would also be placed in a specialty pharmacy model — the distribution model actually changed during that time frame. The need to hire a knowledgeable task force to educate on biosimilars and have an MSL sales force and reimbursement hotline has become apparent to companies launching or considering launching in the U.S.
We are still faced with challenges today related to the FDA approving biosimilars, but of greater concern is uptake and contracting with third-party payers. The contracting of biosimilars and formulary addition for use by indication varies depending on whether you are a hospital-/IDN-based insurance plan or a private payer, where rebates may be negotiated by a pharmacy benefit manager (PBM) to block a biosimilar from being used as the preferred formulary drug. IDN-based insurance plans prefer an up-front price, because then they know the cost to their health plan and it is passed on to their plan and beneficiaries immediately. I recently had a patient who was receiving a biosimilar approved by a health plan/PBM and having good results with no adverse effects, but the third-party payer told the patient they had to switch to the innovator/brand product and eliminated the billing code for the biosimilar. The physician, a rheumatologist, was doing the right thing to save the health plan by using the less-costly biosimilar but lost prescribing control to the health plan/PBM. I spoke with the patient, who was concerned that this happened with no communication from the health plan or PBM until they showed up for their infusion. They didn’t want to suffer a non-clinical response or adverse event. As in this case, many of the biosimilars being developed are “quality-of-life” drugs that help people deal day to day.
Another issue we’re starting to see is that private insurance plans may ship the drug via white bagging or as a specialty drug to the physician office or hospital, where infusion and administration of the drug occurs. The formulary and patient-site-of-care models are being dictated by the payer, making it difficult to comply with any type of GPO contracting model that may be negotiated to save money on behalf of their hospital members. The GPO contacting model normally is based on volume or market share and could have tiered discount pricing. An IDN contract may be more value-based and have metrics to measure such as clinical and patient satisfaction. Also, in order to avoid drug shortages, the GPO may have to dual award a biosimilar, especially if the biosimilars have different indications. The goal of dual-awarding would be to avoid a biosmilar drug shortage, but if indications are different, you may need a dual award to bill various payers by indication for use.
If I operated my own health system/IDN insurance plan, I would approach a biosimilar differently than a large private health plan. For example, if I am part of an IDN with a health plan, I likely will be asked if I negotiate directly with manufacturers and what type of contract is best (i.e., market-basket or value/outcomes-based?). I would also control my own formulary and could measure clinical outcomes, safety, and even satisfaction of my plan members, as well as physicians.
As I have discussions with many of my colleagues around the U.S., the issue of R&D and the number of biosimilars being developed will become an issue, especially if branded companies negotiate directly with private payers to block entry or acceptance of a biosmilar to the health plan/PBM formulary. Branded companies launching biosimilars have a history of working with health plans and PBMs and may have the bandwidth to negotiate with them. Newer companies in the market and traditional generic companies may not have payer experience, which in the past has not been a strong point for some generic companies. Another issue is understanding the site of care where these drugs are being used and where the health plans/PBMs dictate to their beneficiaries, including home infusion. Because these drugs are usually administered in outpatient environments, a formulary needs to be built around the products payers have negotiated for use. A hospital, IDN, or GPO may carry more than one biosimilar or a brand and a biosimilar on its formulary/contract to treat patients and be reimbursed.
Based on what is happening today, many are asking how many biosimilars should come to market: two to three? More? Can the market sustain more than two to three if the payers control the contracts, site of care, and reimbursement of these drugs? We will find out over the next three to five years.
How Biosimilar Manufacturers Can Improve Their Traction In The Hospital Market
My recommendation to any company launching a biosimilar is to start meeting with potential customers six to 12 months prior to launch or FDA approval. This includes clinicians who will diagnose and treat patients, pharmacists and pharmacy leaders involved in hospital/IDN P&T committees and formulary management, payers (government/CMS, private, IDN-based) and PBMs, various GPOs that support hospitals and physician practices, and distributors/wholesalers. Remember, these are not true generic drugs and not the innovator/brand; biosmiliars are branded generics that need support, like branded drugs.
Determine what type of information each customer will need for a successful launch. Develop the infrastructure needed to support the launch and ongoing life cycle of the biosimilar, based on the diverse customer models you work with. Bring different expertise into the company to address all your customer expectations.
Lastly, always think about the end user — the patient. We exist because of them.
About The Author:
Fred J. Pane is VP, Pharmacy Services for Coordinated Health. He has over 20 years of experience addressing the value/ROI of drugs and their impact on patient care and operational efficiency. Pane is a fellow of The American Society of Health-system Pharmacy (ASHP) and completed an 18-month fellowship in healthcare leadership with The Advisory Board Company, with a focus on understanding the current and future healthcare ecosystem. He works with ASHP and colleagues around the U.S. discussing issues that impact the profession of health system pharmacy, as well as with The Advisory Board Company on healthcare, supply chain, and pharmacy issues. Pane received his B.S. in pharmacy from St. John’s University.