Is It About the Rebates, Net Costs, or Both?

It sounds a bit absurd, but we shouldn’t be surprised at this point: Health plans may not be satisfied if pharma companies simply dropped their drugs’ retail prices. They still want their drug rebates on top of this, says one well-known industry analyst. The pharmaceutical industry is stunned, because its members believed that the net price was the only thing that really mattered (or so they were told). It seems that payers’ addiction to rebates is even tougher to kick than originally thought.

Drug rebates
Ronny Gal

Ronny Gal, an analyst from Sanford Bernstein, told Fierce Pharma  on February 11 that UnitedHealthcare will be seeking “equivalent” rebates on medications, regardless of whether a company drops its price. According to the article, UHC executives confirmed the statement. Their logic isn’t completely crazy, but it is problematic. The rebates, plans have argued, help minimize consumer premium increases.

Let’s assume that this is the case: larger plans would lose millions of dollars in revenue if their 20% rebate, for example, were exchanged for simply a 20% decrease in wholesale acquisition cost (WAC). If the plan is truly using this revenue to subsidize higher medical costs, then members’ premiums would have to rise a commensurate amount.

Well, that just puts the pharmaceutical companies (and even biosimilar makers) in a difficult position. If drug A costs $600 per month, and to comply with the federal government’s efforts (and those of some pharmacy benefit managers [PBMs]) to lower medication prices, they drop their price to $400 per month. Don’t scoff, the makers of the PCSK9 hypercholesterolemia drugs just cut their WAC by 60%. Similarly, makers of hepatitis C virus treatments whacked their WACs by significant amounts in 2018. Assume the manufacturer of drug A was giving the PBM a 20% (or $120 per month per prescription) rebate to maintain co-preferred position, and the PBM shared half that rebate with the health plan ($60 per month per prescription). Now, let’s also assume that the pharmaceutical company refuses to add a rebate on top of this amount. Who will make up the difference, if the health plan insists upon it? The PBM? Don’t bet on it.

For biosimilar manufacturers, this lower price plus rebate scenario can be very discouraging. If you agree that a biosimilar maker can only gain access if it maintains a 25%+ discount to the reference drug manufacturer’s WAC, then the prospect of an additional rebate puts further price reduction pressure on their profitability. That could bolster the argument that pharma should steer clear of the biosimilar marketplace.

We always understood that from a payer standpoint, net cost was the primary objective. We were told many times that although it didn’t matter as much how the number was arrived at, the health plans preferred lower WAC as opposed to higher rebates. Now, we’re not so sure whether the rebate trap hasn’t ensnared those health plan executives.

Biosimilar Step Therapy for Medicare Part B: Does This Make Sense?

The Centers for Medicare and Medicaid Services (CMS) has decided drugs covered under Medicare part B may be subject to step therapy, if so desired by Medicare Advantage plans. UnitedHealthcare has become the first to publicly implement step therapy policies for these drugs. However, biosimilar step therapy is not the typical utilization management tool that industry executives are used to seeing.

biosimilar step therapyTraditional step therapy or step edits for prior authorization policies are typically used to require the use of an effective, low-cost drug class before trying a more-expensive treatment. For example, a plan might have a step in place before a patient can receive Humira®, such as requiring documented failure on other disease-modifying anti-rheumatic drugs, like azathioprine or methotrexate. This makes very good sense when supported by practice guidelines or treatment pathways, based on solid supportive evidence.

For biosimilar manufacturers, the perspective on the revised CMS policy, seems to imply trying the biosimilar before receiving the branded originator product. This biosimilar step therapy would make very little sense. A doctor would not be practicing evidence-based medicine if he or she prescribed Remicade® to a patient after failure of Renflexis®. There is no evidence to show that the biosimilar will work in a patient who did not receive adequate clinical benefit from the reference product (and vice versa). Similarly, there is no information to show that a patient who has an adverse effect while taking Remicade will not have that adverse effect after injecting with Renflexis (or vice versa). In other words, after failing one, a new mechanism of action should be tried, not a product with a very similar structure. This may be a different argument, if a subcutaneous form of infliximab was introduced, and this might be reason to step the infusible form through this drug.

In United’s announcement, they are clearly seeking to increase biosimilar utilization, as designated preferred part B agents, at the expense of Remicade use, the nonpreferred agent. Therefore, it may make more sense that new patients will have to use a biosimilar before being prescribed the reference product. Step therapy in this case is almost an aside.

Ironically, the Department of Health and Human Services has also expressed its desire to move part B agents like self-administered injectables to part D. This may not apply to infliximab, as it is given as an in-office infusion. Should this be the case, plans will have many pharmacy tools at their disposal beyond biosimilar step therapy.

In other biosimilar news…Fresenius Kabi has signed an agreement with Abbvie to delay its adalimumab biosimilar market entry in the US until 2023. The manufacturer is currently trying to secure European approval for the product. A 351(k) application has not yet been filed by Fresenius in the US.