The Pitfalls of Pinning Savings on Biosimilars

With the recent capitulation by the Centers for Medicare and Medicaid (CMS) that its part B pilot on value-based purchasing was not going to be implemented, another organization has proposed 2 other avenues to value-based purchasing, which it thinks will encourage biosimilar use and save the part B program billions.

The Pew Charitable Trusts acknowledge the core problem, that payment of average sales price (ASP) plus 4.3% encourages use of the higher priced drug. To address this, Pew offers a consolidated rate plan or a least costly alternative (LCA) plan. They demonstrated the savings that could accrue with either by utilizing an economic model based on the introduction of 5 major biosimilars (1 already approved [infliximab], 3 filed for approval [bevacizumab, pegfilgrastim, and trastuzumab], and 1 not yet under review [rituximab]). Under the model’s assumptions (a few of which are questionable), either approach would cut costs dramatically with just these 5 biosimilars.

Under a consolidated payment rate, CMS reimbursements would be based on a volume-weighted ASP of all reference and biosimilar prescribing, similar to what is used in the conventional brand–generic arena. Pew suggests that “Part B drug spending could be reduced if providers responded by increasing their use of biosimilars over reference biologics (or increasing the use of the reference product if it were available at lower cost… A consolidated payment approach, which would effectively decrease Medicare payment for higher-cost reference biologics and increase payment for lower-cost biosimilars, would create a financial incentive for providers to switch to the latter.”

The second approach is the least-costly alternative, where the payment rate for a higher-cost therapy is set at the payment of a lower-cost, therapeutically comparable alternative—a form of maximum allowable cost (MAC) used in the generic marketplace.

Either approach would depend on the substitutability of a biosimilar for a biologic, as well as an acknowledgement that if the part B payment is lower than the providers’ purchase cost, they will avoid treating part B patients who need these agents and send them to potentially more expensive treatment settings.

Based on these two alternative payment policies, the Pew Charitable Trusts believes that the part B program can save, based on 2014 Medicare expenditures for the 5 reference products, $4.32 billion (or a 21% savings) with the consolidated payment approach and $3.56 billion (or a 35% savings) with the LCA.

These savings figures are unlikely, however, because the devil is in the details, once again. A few key assumptions are important to note:

These 5 biologics are assumed to have lost exclusivity and patent protection, and to have begun facing competition from biosimilars. The time horizon may be problematic here, as clearing the patent litigation is taking far longer than expected, meaning that launches are experiencing unanticipated delays, unless the manufacturer decides to launch “at risk.”

The price of each reference biologic remains constant at the average of its 2014 payment rate. Reference biologic and biosimilar ASPs do not change during the year. Unfortunately, we know this is not the case, as several biologics facing the possibility of biosimilar competition have been subject to alarming price increases, often twice a year, which affect the ASPs.

Biosimilar prices are 35% lower than those of reference biologics. The authors of the analysis based their assumption on pricing differentials found in Europe. So far, the pricing differential of 15% for the 2 launched biosimilars would result in minimal savings, according to the Pew Charitable Trusts’ sensitivity analysis. A 35% decrease may not be evident until competition intensifies, with more than 1 biosimilar available for the reference product.

Under the current payment policy, use of biosimilars is 50% of the total biologic utilization. This assumption is also based on the uptake in Europe, and will not likely be seen in the US without steep price discounts.

Biosimilar prices and uptake are not affected by the number of biosimilars available. The launch of multiple biosimilars for the same reference biologic does not create any additional effect on prices or utilization. This would seem to violate a basic precept of competition in this area, but it could mean that model savings are understated. We’ll have to wait and see how far prices are driven down by additional competition.

The concept of a value-based payment model, which would help encourage use of the lower priced, effective product, is laudable, but savings calculated based on economic modeling (here and for other estimates of biosimilar adoption) have been overly optimistic. Perhaps the numbers pan out over the long term, but today, they may not present a strong enough case to influence CMS or legislative action.

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