It will take a close reading of the 600 pages of government policy to grasp their implications, but it seems the final rules by the Department of Health and Human Services (HHS) could on one hand lower a real barrier to biosimilar uptake and on the other hand create real problems for biosimilar manufacturers. In this post, we’ll put the spotlight on the final Medicare part D rebate rule.
Started in 2018, Stopped in 2019, Started Again in 2020, Stopped in 2021?
In early 2019, HHS Secretary Alex Azar announced the administration’s proposal to remove the drug rebate safe harbor from the federal antikickback statute. And it was mentioned during the summary of 2018 as a way to help biosimilar competitiveness, as part of the Biosimilar Action Plan. We attributed this move as a way of addressing the drug rebate trap, which acts as a disincentive to utilize newly marketed biosimilars. Movement on the drug rebate safe harbor stalled once the federal government calculated that such a plan would increase Medicare premiums. Secretary Azar claims that this rule would have no effect on final premiums.
According to the final rule, the safe harbor for part D rebates will be revoked January 2022, if no measures are taken by the incoming Biden administration to delay, modify, or even eliminate the rule. Rebates or discounts offered to Medicare patients at the pharmacy counter or point of sale will still be permitted. The existing rules regarding Medicaid supplemental rebates and rebates to Medicaid managed care organizations are not affected by the new safe harbor policies.
In the original proposed rule, “As proposed, this safe harbor would protect reductions in price on prescription pharmaceutical products offered to plan sponsors under Medicare Part D, Medicaid MCOs, or through a PBM acting under contract with either if: (1) the reduction in price is set in advance; (2) the reduction in price does not involve a rebate, unless the full value of the price reduction is accomplished through chargebacks or is a rebate required by law; and (3) the reduction in price is completely reflected in the price the pharmacy charges to the beneficiary at the point of sale.”
Now if It Applied to Part B, Well That Would Be Big for Biosimilars…
The first biosimilars that will largely be reimbursed under the part D benefit will likely be the first insulins approved as biosimilars in 2021 or 2022, or adalimumab in January 2023. The others available today are covered under part B, with perhaps the occasional exception being pegfilgrastim prefilled syringes, which can be self-injected at home. The removal of drug rebates for part D drugs can be a positive for biosimilars, assuming they are covered under the pharmacy benefit. It will allow more direct price competition for these specific agents, but because it is limited to part D drugs, the ramifications of this rule for biosimilars will remain somewhat limited. Applying the rebate rule to part B drugs would be a much more effective way to increase utilization of biosimilars (both existing and future). To the extent that Medicare plans to eventually shift more drugs from part B to part D, this may apply to far more agents. Will the safe-harbor rebate removal apply to commercial plans? Not according to HHS: “Extension of the revised discount safe harbor…to the commercial market is beyond the scope of this rulemaking.”
If part D biosimilars competed on price alone rather than on price plus rebates, that would help level the drug formulary playing field. That is, if the rebate revenue received by PBMs and plans is now negated, those organizations would no longer have major incentives to prefer the reference product. The reason is simple: Rebates are only valuable if a drug is utilized. A biosimilar when launched has no utilization. Therefore, a biosimilar rebate is rendered meaningless when the reference drug has 100% utilization.
There is some concern that pharmacy benefit managers and others might attempt to retain current rebate revenue in some other form (perhaps as a chargeback for “value-based services”). In response, HHS specified, “We note that labeling an arrangement as ‘value-based’ does not necessarily make it so, and any arrangement (whether labeled as value-based or otherwise) must still comply with all conditions of a safe harbor” and that “Value-based arrangements, like all arrangements that implicate the anti-kickback statute, must be analyzed on a case-by-case basis.”
Some point-of-sale rebates used to assure preferred formulary positioning would still be protected by a safe harbor. The key is to pass those rebates onto consumers at the point of sale and not to a pharmacy benefit manager.
Deflating the Gross-to-Net Bubble
Of course, the biosimilar poster child for the damage posed by rebate traps is the long-running Inflectra® and Renflexis® vs. Remicade® story. Yet, this is the only real case where biosimilar uptake has been seriously damaged because of rebates offered by the reference manufacturer (Janssen Biotech). We have pointed out previously that Pfizer did themselves no favors in its initial pricing and launch of Inflectra, allowing Janssen to easily offer greater rebates to protect its marketshare.
Although the rebate itself may not be at fault, it allowed the gross-versus-net bubble to grow, to a point where retail prices had no bearing at all on actual cost. The infamous rebate has also clouded individual drug contracts to a point where no payer truly knows what another payer is paying for a drug product. Removing rebates from the equation can only make drug deals and discounting more transparent—unless or until PBMs and others find a new way to opacify the system.
As expected, the major trade organizations are lining up for or against the changes in the rebate safe harbor. The Pharmaceutical Care Management Association, representing PBMs, has stated its opposition. America’s Health Insurance Plans, an association representing payers, has expressed its concerns that lost rebate revenues will likely raise premiums. On the other hand, PhRMA has issued statements that support the rebate rule. Both BIO and PhRMA have published statements that are very much against the most-favored nations rule. BIO has gone so far as to call the latter an attempt at revenge by the Trump administration for the organization not fulfilling the President’s wish for a vaccine prior to the election.
In our next post, we’ll address how the Most Favored Nation’s Clause could be a very real disincentive to biosimilar makers.