How This Medicare Part D Proposal Gives Biosimilars Chance To Shine
By Anna Rose Welch, Editorial & Community Director, Advancing RNA
The American College of Rheumatology 2017 Annual Meeting in early November featured a widely publicized debate: “Biosimilars… To Switch, or Not To Switch?” The debate, which featured two physicians — one arguing for switching and the other against — touched upon what you might expect in a biosimilar debate. In the pro-biosimilar category, you had positive real-world evidence on the efficacy and safety of switching and the impact of market competition, lower prices, and greater access. But what surprised me the most was the con-side of the argument. Though the doctor approached the clinical side of things by arguing the “Nocebo effect” is just data biosimilar makers “get that they don’t want to see,” he also took what I consider a particularly harsh stance against the current pricing of biosimilars.
He said, “I live in the U.S., and I don’t get any benefit [from biosimilars], my government doesn’t get any benefit.” And a large reason for this is because of the rebate system — a “very sad system,” he said — that keeps patients tied to the reference product and higher prices.
Pricing has been a common issue amongst physicians and patients. But what was particularly notable about this discussion is that it touched upon another even bigger debate that’s been rising in intensity over the past year: the success (or lack thereof) of the current pharmaceutical supply chain.
An image those of us in the biosimilar industry have grown quite familiar with is the famous development triangle. But, these days, we’re becoming increasingly familiar with another popular infographic — the map of intermediaries within our healthcare system. I’m sure most of you have seen some version of this chart. For instance, the Association for Accessible Medicines (AAM) has a very detailed example of the generic drug supply chain revealing the contractual relationships, the exchange of funds, and the profits of each intermediary. The parties in the supply chain include the patient, their employer, third-party payers, the pharmacy benefit manager (PBM), the pharmacy, the manufacturer, and the wholesaler. And, as you’ll likely note, the passing back and forth of funds among the different parties resembles an elaborate game of cats-cradle.
I recently livestreamed and wrote a preliminary response to the FTC’s workshop on competition held in early November. And a large topic of conversation was the role of the intermediaries and the U.S.s’ “very sad system” of rebates. And, as luck would have it, just a few weeks later, CMS stepped up to plate to address the use of rebates specifically in Medicare Part D.
Just a week or so after its big reversal on the controversial Medicare Part B rule for biosimilars, the agency released a proposed rule that would encourage the use of biosimilars under Medicare Part D. Unfortunately, this proposed rule doesn’t address the prominent concerns about biosimilar costs in the famous donut hole/coverage gap, as this will likely require a change in statute. That said, however, a portion of CMS’ document (pages 296 to 300) discusses new payment rules for low-income-subsidy (LIS) patients, which many of you have likely heard about by now.
However, an area I’d argue that hasn’t been given enough attention thus far is CMS’ proposal that would require payers to pass on a specific portion of manufacturer rebates at the point-of-sale (POS) to consumers (pages 305 to 339). Establishing new language around this requirement could bode well for biosimilar makers, and especially those that provide a competitive price. In the long run, this revised system could give biosimilar makers the opportunity to shine and increase accessibility and savings for patients.
The Rebate Problem
As we all are at least somewhat familiar, manufacturers often provide a rebate to health plans, PBMs, or other managed care organizations following the purchase of pharmaceutical products. These rebates take several different forms, including market share rebates and formulary-based rebates. Regardless of type, however, these rebates serve as the most common mechanism to reduce drug costs and to ensure competitive market share. The PBM or health plan, which negotiates these discounts and rebates with manufacturers, is then responsible for transferring a percentage, if not the entirety, of the rebates received from the manufacturer to its clients (third-party payers or employers).
During his presentation at the FTC workshop, Mark Merritt, the president and CEO of the Pharmaceutical Care Management Association, described, in the commercial (non-Medicare) space, “Each payer determines what percentage of rebates is passed through and how much they want PBMs to keep. Ninety percent of rebates are passed through to the plan sponsors, but about half of our large clients/large employers are increasingly requesting that 100 percent of rebates be passed through.”
In many cases, the payers receiving 100 percent of the rebates for drugs are also deciding how and where those rebates are applied. For instance, payers could use rebates to reduce the POS cost or to reduce deductibles or premiums. In many cases, rebates are typically applied to premiums, as sharing rebates with patients at the POS has been particularly difficult given a lack of high demand and because of how Medicare Part D is currently structured, Merritt added.
However, over the last year or so, frustration has increased over how savings garnered within this elaborate supply chain are shared (or not shared) amongst all stakeholders. As Jennifer Bryant, SVP of policy and research for PhRMA, also stated at the FTC conference, “I would argue the market isn’t working, in part, as the result of the success of intermediaries. It’s not about whether we need intermediaries; it’s about the terms of competition and making sure the market is working well for everyone.” Ultimately, this means making sure rebates and savings are benefiting patients and the healthcare system more broadly.
CMS’ New Proposal: How It Could Benefit Biosimilars
Unfortunately, the FTC workshop occurred just a few weeks too early to touch upon some of the implications of CMS’ newly proposed rule regarding the tricky Medicare Part D landscape — in particular its proposal for applying rebates at the POS (pages 305 to 339). As the document describes, insurers are currently more likely to use manufacturer rebates to lower premiums. However, even though patients may gain lower premiums as a result, the current system does not help the patient realize any savings in cost-sharing for a biologic they pick up at the pharmacy. Therefore, they are responsible for covering a larger portion of a drug’s actual cost.
When the Medicare Part D program was launched in 2005, there was no language requiring sponsors to pass a portion of manufacturer rebates on to the beneficiaries at the POS. Rather, it was assumed that market competition would encourage insurers to do so. It was also assumed that requiring insurers to give a portion of a rebate to customers at the POS would harm that competition. But to date, CMS points out that that passing on rebates at the POS has occurred “only very rarely.” As such, though patients may have lower premiums because they’re not seeing any rebates at the POS, they have faced higher out-of-pocket costs.
Therefore, CMS is asking for industry for suggestions on how Part D sponsors can pass on a portion of manufacturer rebates at the POS, in turn lowering costs for patients and the government (which picks up out-of-pocket costs for Low-Income Subsidy [LIS] enrollees). CMS writes, “We are considering requiring, through future rulemaking, Part D sponsors include in the negotiated price reported to CMS for a covered Part D drug a specified minimum percentage of the cost-weighted average of rebates provided by drug manufacturers for covered Part D drugs in the same therapeutic category or class” (page 314).
Though this requirement could positively impact some patients’ wallets after visiting the pharmacy, a downfall to this requirement is that all beneficiaries would see increases in premiums. Similarly, the lack of flexibility in how sponsors choose to use manufacturer rebates could also lead to less incentive to participate in the Part D program. But, as CMS emphasizes, it’s not requiring 100 percent of a rebate to be passed on at the POS; rather, the end goal is to achieve “an appropriate balance between these outcomes … [to achieve] the greatest possible increase in beneficiary access to affordable medications” (page 315). (For those of you interested, the CMS document provides a chart on page 338 highlighting the impact of POS-pharmacy rebate sharing between 2019 and 2028. Overall, the chart reveals lower month-to-month beneficiary costs [despite an overall increase in premiums.])
Negotiations surrounding this proposed policy will, undoubtedly, incur some heated debates amongst stakeholders (as has been the norm in this space). However, it would be in manufacturers’ best interests to pay close attention to this portion of CMS’ proposed rule, especially if they hope to realize their mission of bolstering access to biologics.
Over the past few weeks, CMS has begun the long process of establishing a (hopefully) more feasible system to establish a competitive, more supportive system for biosimilars. Now, it’s the manufacturers chance to take advantage of what could be a very valuable scenario in which the two components of a biosimilar’s pricing — the lower price and rebate — could both be passed directly to patients. In order to best do this, biosimilar manufacturers will have to offer a lower net price compared to the reference product. (In other words, the list price minus the rebate will need to produce a lower price point than the reference product). After all, a common complaint voiced by patients and doctors (and even payers, for that matter) is that biosimilar prices are not yet appealing enough to justify a switch. More competition will, inevitably, help bring about greater discounts overtime. But solutions that patients can encounter at the POS, like CMS is proposing, also hold great potential for patients to directly benefit from rebates and realize greater day-to-day savings from their biologic treatments.