By F. Randy Vogenberg, PhD
Dr. Vogenberg is Principal, Institute for Integrated Healthcare, and Board Leader, Employer Provider Council, Greenville, SC
Employers can wield tremendous leverage in optimizing biosimilar uptake, but they have remained relatively disengaged to date. The successful record of biosimilar competition lowering biologic drug costs can be far better supported by self-insured employers in the US. To do so, employers need to think more deeply about their pharmacy benefit management (PBM) options and decision making, and contracting from a transparent financial perspective.
Employers contract and make coverage decisions around the products or services offered in their plan, allowing them latitude to make the best fiduciary decisions on behalf of their plan members (patient). Recent lawsuits filed on behalf of employees suggest that this fiduciary responsibility is imperative.
As new biosimilar options for biologic therapies enter the market, employer engagement in their benefit administration vendors (e.g., PBMs and benefit consultants) becomes increasingly important. They have the ability to effectively leverage the success of the biosimilar industry, as more biosimilars covered under the pharmacy benefit are introduced.
There are approximately 37,900 self-insured group health plans (commercial insurance) covering 35 million participants in the US, based on 2020 figures from the Department of Labor. The number of self-insured employers in the United States varies by the size of the employer.
Self-insurance for healthcare is more common among large employers, because they can spread the risk of costly claims over more workers. Self-insurance is riskier for smaller firms because they have fewer employees to spread the risk so they typically will fully fund or insure their risk. Commercial insurance risk has emerged as an important driver for employers making coverage decisions in employee benefits. One example of risk management and assessment in the pharmacy benefit is the issue of biosimilar utilization versus branded biologic therapies.
Self-Funded Employers’ Reliance on PBMs
Nearly all employers who self-fund utilize PBMs to manage the pharmacy benefit, but the fiduciary responsibility of the employer on behalf of their plan members remains with the employer. The big 3 PBMs (CVS/Caremark, Express Scripts, and OptumRx) control approximately 79% of the pharmacy lives in the US across commercial, Medicare, and Medicaid lines of business.
This becomes an issue on the financial side regarding any rebates, discounts, lowest-cost alternatives, or other product coverage determinations by a PBM that may not be known or disclosed to the employer plan sponsor. Therefore, transparency in the financial aspects of product or claims management is a critical issue when considering private-label versus branded biosimilars.
Interestingly, quality of care, while important, is not directly related to the fiduciary, financially responsible actions that a plan sponsor is required to perform on behalf of their members.
On the Cusp of Losing the Larger Biosimilar Savings Opportunity
In an ideal market, if all products facing patent expiration in the next 10 years (and currently have no biosimilar pipeline) were to face biosimilar competition at expiry, IQVIA estimated the US healthcare system could save an additional $189 billion on top of savings generated by biosimilars already on the market or expected to enter.
The launch of the adalimumab biosimilars in 2023, the first major immunology category covered under the pharmacy benefit, typically offered both a high wholesale acquisition cost (WAC) (80%+ discounts) and a low WAC (5%–10% discounts) option; that is, the savings upon launch can be significant for any of these products versus a brand assuming a plan takes the low-WAC agent. The 2024 launches of private-labeled agents by the PBMs and their distributor subsidiaries are generally low WAC, allowing for greater spread-revenue sharing through related contracts outside of an employer plan contract (the exception is Quallent Pharmaceuticals versions of Cyltezo and Simlandi, which are priced at a mid-range discount of 46%).
Concerns have emerged around the growing use of these PBM-driven private-label biosimilars as being detrimental to future biosimilar development. Limiting the growth in biosimilars available or closing off a manufacturer’s pathway to future revenue can stunt interest by manufacturers to pursue new biosimilars, cutting off the opportunity to save a cumulative $232 billion over 10 years. For example, only 12 molecules set to lose patent protection from 2025 to 2034 have biosimilars in development as of June 2024.
Over the next several years, additional biosimilars for omalizumab (Xolair, GSK). Secukinumab (Cosentyx, Novartis), and denosumab (Prolia, Amgen) are anticipated to impact market dynamics. In total, 118 biologic patent expirations will occur over the next 10 years.
Why are Express Scripts, CVS Caremark, and OptumRx following this private-labeling approach? The answer lies in the WAC pricing of biosimilars. In this scenario, PBMs can sell private-label, low-WAC versions to their employer clients, thereby offering a “savings” opportunity. However, PBMs and manufacturing firms share remaining revenues with contracted distributors, creating additional income back to the PBM. For example, a product sold at an 80% WAC discount leaves 20% left for revenue sharing with the PBM’s distributor and biosimilar manufacturer. This new income to the PBM’s parent can offset potential losses to rebate revenue or audit efforts by employer plans.
Generally, employers are unaware of all the different PBM non-employer stakeholder contracts and implications of such additional arrangements. Brokers or third-party administrators may also participate in such arrangements. Current regulatory efforts have no effect due to the private nature of contracts with commercial plans.
Short-Term Savings, Long-Term Questions About Biosimilar Savings
The promotion of PBMs’ private-label biosimilars may offer some savings today for plan sponsors, but it may also be threatening future savings opportunities. In the US, employer plan sponsors and their vendors have more than $100 billion in potential savings with a competitive, fully open, and transparent biosimilars marketplace. That opportunity derives from growing biologic patent expirations, increasing access to biosimilars across populations, and eliminating unnecessary middlemen pricing policies that can hinder long-term savings associated with biosimilars.
