Alternative Payment Models for Biosimilars May Reduce Medicare Spending

Health care stakeholders are always on the hunt for new ways to reduce costs, especially as the price tags for many drugs are rising at an alarming rate. One possible avenue is the uptake of biosimilars in Medicare Part B, which may be able to save money without sacrificing patient outcomes.

Part B reimbursement is largely based on a drug’s average sales price (ASP) for purchasers, and most receive an additional 4.3%. Interestingly, physicians who administer biosimilars are reimbursed the ASP plus 4.3% of the ASP for the reference product, according to a study published by The PEW Charitable Trusts.

This biosimilar payment model is designed to create a significant financial incentive for physicians to prescribe a biosimilar, which is typically less costly compared with the reference product.

Alternatively, Part B may choose to reimburse through a different model. Currently, Part B reimburses the same for both branded and generic drugs. This consolidated rate is based on the ASP of all branded drugs and generics of a specific drug, according to the study.

Implementing a similar consolidated rate for reference products and biosimilars would likely reduce drug spending if providers subsequently increased the use of the less costly biosimilar. However, the change in spending is contingent on how readily providers will prescribe the lower-cost drug.

This payment approach would create another financial incentive for providers to prescribe the lower-cost biosimilar. Medicare’s current use of this payment model has already reduced the price paid for branded drugs by 60% in 2 years, according to the study.

A less costly alternative approach may also work to reduce drug spending, because physicians are more likely to choose a lower-cost option if they receive higher payments than they would for a higher-cost drug. The difference between this approach and consolidated payments is that a least costly alternative approach does not rely on uptake of biosimilars to reduce costs.

Both approaches would be feasible for interchangeable products, and even products that were not designated as so by the FDA. Since biosimilars have similar efficacy to the reference biologics, insurers are likely to favor the reimbursement of the lower-cost drug, even if the FDA did not conclude the drugs are interchangeable, according to the study.

However, the consolidated and less costly alternative approaches may not be fitting in cases where a patient cannot switch treatments due to safety concerns. Furthermore, certain biosimilars may have different interchangeabilities depending on the particular indication it is being used for.

Changing to these payment models may also cause some physicians to incur debt if the cost of acquiring the drug is more than the reimbursement. This may cause physicians to limit their prescriptions of biologics that do not have a biosimilar alternative, and limit patient access to the drugs, according to the study.

A change in payment model may also cause drug manufacturers to lower the price of the reference products to close the cost gap between the drugs.

Medicare Part B spending on 5 biologic drugs, bevacizumab (Avastin), trastuzumab (Herceptin), pegfilgrastim (Neulasta), infliximab (Remicade), and rituximab (Rituxan), was $5.47 billion in 2014, with $5.25 billion paid for the drugs themselves, and $226 million for the 4.3% add-on payment, according to the study.

If biosimilars were more widely-used, the investigators estimate that Part B would only spend $4.55 billion. Using the consolidated payment approach could reduce spending to $4.32 billion, a 17% reduction. The least costly alternative approach could reduce spending to $3.56 billion, a 35% reduction, according to the study.

Concerns surround changing reimbursement over its potential to limit patient access to biologic drugs that do not have a biosimilar alternative, but the investigators stress that clinical evidence must be accounted for when deciding how to reimburse for biosimilars.

With current payments, physicians are equally incentivized to prescribe either a biosimilar or a reference product. Alternative payment models may be the key to reducing Part B drug spending; however, a wide range of evidence must be assessed by policymakers to ensure that patients are still able to receive the clinically appropriate drug, even if it is not the lowest-cost option, the study concluded.