Additional Thoughts on CMS’s Changes to Biosimilar Part B Coding

The biosimilar news articles of the last week have included more data and announcements from the American College of Rheumatology on clinical outcomes of biosimilars to the reference product, debates over their prescription and utility of interchangeability, and of course, and frustration over the delays in biosimilars reaching the market caused by patent litigation. As interesting as all of these are, it does mean that last week’s major announcement by the Centers for Medicare and Medicaid Services (CMS) remains number 1 at the biosimilar box office.

With less “new” news to report, I’ve had a chance to reflect on what Medicare’s change in the way biosimilars are coded and reimbursed will mean to various stakeholders.

cropped-cropped-web-image-1As a reminder, all biosimilars for one originator product are given the same temporary Q code under the current policy. The reference product retains its unique J code. The average sales price (ASP) is calculated on the volume-weighted utilization of these grouped biosimilars. Physicians who buy and bill are paid ASP + 6% (actually + 4.3% because of the financial sequester), with that spread being based on the (higher) ASP of the reference product. The new policy would provide a specific Q code to any new biosimilar, and the ASP for reimbursement purposes would be calculated for individual drugs and not as a group.

From a provider standpoint, this might help alleviate any confusion that may exist now and in the future about which biosimilars are prescribed (or dispensed). Today, only infliximab has more than one biosimilar on the market for the same originator biologic. In the not-too-distant future, competition may be rife for etanercept, pegfilgrastim, trastuzumab, among others. However, the current policy, under which related biosimilars have the same Q-code, could also perpetuate the confusion that all of the biosimilars are biosimilar to each other. The new policy would remove that potential source of confusion. This may be less important, though, as National Drug Codes (NDCs) are unique today, and full NDC information includes descriptors regarding their manufacturer and biosimilar status. And many payers require NDC codes for physician reimbursement of buy-and-bill biologics.

In terms of cost savings, the positive effect of the new policy will be relegated to the future. In the short term, the current policy encouraged greater immediate discounts. Consider an originator drug that cost $5,000 per month. The first biosimilar, approved in 2017, for example, might be priced at a modest 15% discount ($4,250). The originator would have little reason not to meet that price through rebates. Under current policy, consider a second biosimilar that is approved in 2018. With the same Q code, there is little to differentiate the two biosimilars except price. Add a third biosimilar to the mix (at a 35% discount or $3,250), and you can see rapidly increasing discounts—a boon to the payer, and possibly the patient, but a real problem for the manufacturers. Since the product’s ASP reimbursement is volume weighted, as agents are introduced into the category at greater discounts, one would expect that reimbursement would rapidly decrease as well. In total, the biosimilar industry has argued, this would cool interest in biosimilar development over the long term, and could hurt the amount of competition for future biologics coming off patent (and future discounts).

Under the new policy, biosimilars having different HCPCS codes may slow this “race to the bottom.” Or it may not. The nature of biosimilar competition is not based solely on similar coding but on gaining marketshare through payer preference (or exclusions). The real issue is that an insufficient mass of providers are fully at risk who can take greatest advantage of lowest drug pricing and not rebate-associated costs. If your organization is at risk, that is the best incentive to use the lowest priced agent. It is a better exercise in cost-efficient medicine.

The Biosimilars Forum believes that using separate Q-coding for each biosimilar would result in an additional $15 billion in savings over 10 years. This would be attributable to a much higher utilization rate (projected by the Forum of up to 65% at 10 years vs. a projected 35% under current policy). Basically, if these assumptions were taken seriously, they would argue that more immediate price decreases under current policy would not yield greater utilization faster, and thus greater savings. The Forum posits that less competition over the long term will be the result of fewer manufacturers interested in the biosimilar market.

A Reason to Worry About the Nascent Biosimilar Industry

I’m sensing a good deal of cynicism among payers today. Maybe the current specialty pharmacy trend makes them doubt that, in reality, biosimilars will not bend the cost curve significantly. After all, with multiple, frequent price increases in the originator drugs, what will an initial 15% discount on a new biosimilar actually accomplish (e.g., by Inflectra® or Zarxio®), other than turning back the clock 12 months on pricing?

The consensus seems to be, at least with multiple stakeholders attending the Biosimilar Multistakeholder Summit in San Diego on December 1–2, 2016, that the biosimilar industry could be stunted or certainly harmed by the nature of the products’ value proposition and by the economics of payers themselves.

Consider the following: the principal benefit of biosimilars relates to their value—specifically, an economic value. Since they are essentially inexact copies of the originators, biosimilars are not expected to have clinical or safety advantages over the originators. In fact, comparative clinical investigations of biosimilars are designed only to prove noninferiority, not superiority in any way to the originator. That restricts their possible proof of value to lower cost (and thus, hopefully, improved patient access—but this is also not certain).

Under this mindset, if the biosimilar is introduced at a minor discount to the current net price of the originator, the health plan, insurer, or pharmacy benefit manager could simply go back to the originator’s manufacturer and say, “Beat this price if you want to maintain your marketshare.” And the manufacturer can, because the vast majority of all revenues at this juncture of the lifecycle are profit. Their initial investment in clinical product development being paid off in the first years after approval, and their early more-expensive efforts resulting in today’s status with extensive marketshare. In addition, their most recent, frequent price increases have created even more room to negotiate their prices or rebates.

In this case, the biosimilar manufacturer is pressured to offer more aggressive contracts, at a time soon after they are trying to recoup the costs of product development ($100 million to $600 million) and the inevitable patent litigation. According to participants at the meeting, even purchasing samples of the originator product from its manufacturer for analytical and comparability studies required by the US Food and Drug Administration (FDA) could amount to sums more associated with “ransom.”

In the other case, assume that at least 2 biosimilars for the same originator product have entered the market. The net pricing and rebates should drive sales revenues down much faster. With adalimumab, it would not be surprising to see 3 FDA-approved biosimilars entering the market the day after the fight over Humira® patents are settled. Assuming no collusion is involved, free competition should cut the pricing of these agents by far more than 30%. For smaller players, this could be extremely difficult to bear, considering the patent fight has resulted in the loss of hundreds of millions of dollars in lost revenue by the need to delay launch. As an additional note, the extended delays in launch resulting from ongoing patent litigation may render the controversial 180-day notification period moot.

One possible scenario discussed by the participants was the possible sale of their low-profit biosimilar business to foreign companies with the least-expensive manufacturing costs (e.g., India, China, etc) and the exit of North American and Western European drug makers. Another more likely scenario is the short-circuiting of the market, as established companies like Shire (acquirer of Baxalta) or very small biotech firms like Epirus realize that the biosimilar business has far less profit potential than they thought and decide to leave the arena (or are forced financially to do so).

Biosimilars can, of course, improve patient access, right? Well maybe not. We’ll examine that issue in our next post.