Forcing Payers to Cover Biosimilars? Beware of Unintended Consequences

One of the problems that has stalled greater uptake of biosimilars in the US has been payers’ reluctance to give up their rebate revenue from manufacturers of reference biologics. When payers prefer branded reference agents with higher wholesale acquisition costs (WAC), they retain often substantial rebate revenue, with little benefit to consumers.

A proposed bill was introduced into the Minnesota state legislature in February that attempts to remedy the situation. Although the sponsors seem to have their hearts in the right place, they may have not considered how this move could backfire on them, and potentially have negative results for biosimilar manufacturers.

Referred to as SF 990, sponsors Jennifer Schultz (DFL-Duluth) and State Senator Carla Nelson (R-Rochester) introduced the bill into the Minnesota state legislature in mid-February. The objective of the bill is to make more biosimilars accessible to a greater proportion of the state’s residents. Specifically, the bill will require pharmacy benefit managers or health plans/insurers to “not require or demonstrate a preference for a pharmacy or healthcare provider to prescribe or dispense any of the following: (1) a reference biologic, (2) any product that is biosimilar to the reference biologic product, or (3) any product that is an interchangeable biological product, relative to the reference biologic product.” The clause also says, “if a PBM or health carrier elects coverage of a product listed [above], it must also elect equivalent coverage [for all other products in its class].” This requirement would not be applicable to health plans that are part of public programs or those providing coverage through the State Employee Group Insurance Plan.

Under the Minnesota proposal, plans operating in the state would be required to provide equal coverage for biosimilars, reference agents, and interchangeable products in the same drug category, with the expectation that this would make biosimilars more accessible. It may be true. Over the long term though, it could also have the reverse effect.

Consider this hypothetical example: If a plan in Minnesota preferred a reference biologic X, because it costs less than biosimilar Y after rebates and discounts. That level of preferred coverage came with a 20% copay to the consumer (to a maximum out-of-pocket limit). The biosimilar is currently excluded. Now, if SF 990 is signed into law, the biosimilar is now covered at that same 20% copay to the consumer, regardless of what the WAC and net cost may be. That could remove the incentive for the biosimilar manufacturer to lower its WAC cost. It could also remove the incentive for the maker of reference drug X to add discounts and increase rebates to provide the lower net cost. In other words, the prices of both drugs may not be driven down as far by competition. In that case, no one benefits. In fact, there would be more incentive to raise prices, because the law states that the managed care organization would have to cover all if it covers any (even if the price goes up). The law explicitly takes away the payer’s ability to use medical management and formulary tools to control costs. Either way, the bill’s sponsors wouldn’t have intended this to happen.

Undercutting Biosimilar Competition

The better scenario is that the payers prefer the biosimilar agent because they want to, not because they have to. And they will want to because the biosimilar gives them the lowest net cost (either through the introduction of more biosimilars that generate additional competition or through the elimination of rebates). As it stands today, most biosimilar coverage is at parity with reference brands, according to a research letter published in June 2020 in JAMA.

Ms. Schultz said of this bill, “Biosimilars could save families hundreds, or even thousands, of dollars per month. Coverage for lower-cost biosimilars is a must-do.” What if the biosimilars are no longer the lower- cost product?

A wise teacher once counseled me that any time a piece of legislation is passed, unintended consequences will soon be evident, and will surprise everyone—even its critics. And one consequence of this bill could be to undercut competition, which is the reason for biosimilars’ existence.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.