Guest Column | April 3, 2018

Indication- And Reference-Based Pricing: A Positive For Biosimilar Manufacturers?

By Amanda Forys, senior director, Reimbursement Policy Insights Team, Xcenda

Indication- And Reference-Based Pricing: A Positive For Biosimilar Manufacturers?

The U.S. has seen an increasing number of drugs approved for use in multiple indications and patient sub-populations, and this trend has raised questions about drug pricing structures as payers look to control treatment costs. High-priced biologic products that are approved for several indications are priced at a single rate, and some believe that this gives their manufacturers a foothold in the market. To address the concept that the price of a treatment reflects its value for the patients being treated, some have recommended a shift from a one-drug, one-pricing approach to an indication- or reference-based pricing approach. For the new U.S. biosimilar market, payment models based on indication pricing could be limited; however, those based on reference pricing could present an opportunity — especially for high-value products — to gain market share.

In 2016, as part of its ongoing effort to transition healthcare toward value-based care, the Centers for Medicare and Medicaid Services (CMS) proposed a new demonstration project for drugs that fall under Medicare Part B. Phase 1 of the demonstration project proposed to change the average sales price (ASP) + 6 percent payment rate to ASP + 2.5 percent + a flat rate of $16.80. Under Phase 2, CMS announced it would tie payment closer to value for pricing or for efficacy using several different models. Under an indications-based model, CMS stated it would derive a methodology to pay differently for each drug’s indications. CMS believed this type of model could establish a clear benchmark — efficacy for the intended patient population — for pricing and payment and could provide incremental pricing for expanded efficacy in new indications, which could support the cost of research and development for manufacturers.

Another model CMS proposed included reference-based pricing, where a payer would set a price by indication and all drugs for that indication would be paid at the same rate.  For example, Drugs A, B, and C would all be paid at the same rate when they are treating the same condition. From CMS’ perspective, this would level the playing field for cost of care by condition. But this could be detrimental to the willingness of manufacturers to bring new, innovative products to the marketplace due to a lack of incremental pricing that would help them recoup the cost of research and development.

While these seem like two separate payment concepts, a model based on indications could very easily turn into a reference-based pricing model. CMS could start by setting reimbursement by indication for a given drug, and then adjust the drug’s reimbursement further to match other products in that indication.  While CMS’ 2016 proposed demonstration project was ultimately discontinued, these options are still at the forefront of many industry discussions as some the best ways to control costs, and it is important for stakeholders to consider how each of these could snowball into a significant change that could ultimately limit product availability and access.

In general, there are several different ways new pricing models can play out from a payment and coding perspective moving forward. For indications-based pricing, a volume-weighted ASP could be implemented based on what CMS thinks a product’s efficacy in a certain indication may be and the percent of patients using each drug by indication. Alternately, CMS could determine an ASP plus a varying percentage rate based on each indication. In terms of billing and timely reimbursement, an appropriate system would have to be in place to allow for accurate reporting of the drug and the indication to lead to appropriate reimbursement calculations.  Drugs would either need several billing codes or national drug codes by indications, modifiers to denote the patient indication, or claims for all provider types to allow for line-by-line reporting of diagnosis codes to indicate why each drug was given to a patient (currently reported only at the claim level for institutional claims).  This could lead to significant challenges for product packaging and stocking challenges for providers.

For reference-based pricing, CMS could ultimately streamline drug coding to a single code for each condition as it operates under the assumption that drugs within the specified medication group are therapeutically equivalent and clinically interchangeable.  This would limit manufacturers in their ability to set their ASPs, leading to complete market consolidation by condition.

Should indication- or reference-based pricing move forward, the use of real-time claims data will become ever more important. The information that would need to be reported back to payers to develop payment rates will be more heavily scrutinized down to the indication level — a challenge for some products considering there may be no exact ICD-10 code for which to report the indication.

Biosimilars can be approved for the same indications as their originator products, and given the fact that their discounts are already over 30 percent of the originator drug, they could fare well in a reference-based pricing environment. Advantages would be limited for indications-based pricing models, as biosimilar development costs and the pathway to approval is significantly different; therefore, these products may not warrant differential payment by indication.  

How Can Biosimilar Manufacturers Stay On Top Of Pricing Trends?

So what should biosimilar manufacturers consider as new payment models evolve? First, they should engage with industry and advocacy groups to be included in conversations about the best way to implement fair, appropriate payment models. Market stability continues to be a large part of the conversation surrounding biosimilars, so manufacturers will need to work with these groups and payers to understand how new payment methodologies could affect the success of these products.

Additionally, biosimilar manufacturers will need to consider whether these payment models could lessen provider reimbursement and if the complexities regarding these structures may prove confusing or interruptive to a provider’s business. Manufacturers will need to ask themselves how end users may benefit or be hurt by these decisions, and provider and patient education for biosimilars will continue to be important to ensure product uptake. Manufacturers will also need to amend their education materials to include information on coding, packaging, and reimbursement.

Manufacturers should be modeling for these various scenarios and considerations, ensuring they understand how each product may be affected and how to educate all stakeholders about these potential changes. Ultimately, the questions stakeholders need to ask are: Is the patient getting the right product for their condition?  Is it being reported accurately for payment?  And is payment timely and fair?

Indication- and reference-based pricing are complex models of fee-for-value payment, and they could ultimately move toward a reference-based pricing model. Biosimilar manufacturers may gain under a reference-based pricing scenario, as they have some, or all, of their originator’s indications and are already priced lower than their biologic counterparts. Through advance modeling, engaging with industry stakeholders, and competitive pricing, biosimilar manufacturers could ultimately further their goal to deliver on their promise of being cost-effective biologic products.

About The Author:

Amanda Forys, MSPH, is a Sr. Director within Xcenda's Reimbursement Policy Insights consulting team. She has nearly 20 years of healthcare research and consulting experience and her experience includes reimbursement policy analytics, with emphases on Medicare and commercial coverage and payment policy. Her work has covered a wide range of topics, including biosimilars, bundled and episodic based payment models, chronic disease management, oncology, end-stage renal disease, and strategy for specialty pharmaceuticals.