Biosimilar Uptake Challenges: Low-Cost Specialty Drugs Reduce Provider Profits

Biosimilars are heralded as an affordable alternative to expensive biologic medications. Despite their potential to reduce the overall cost of treatment, prescriber uptake has been slow. The primary barrier points towards the current reimbursement model: “buy-and-bill.”

CMS incentivizes biosimilar use through differential reimbursement, but private payers generally do not use this approach.

In new study conducted by Navigant Consulting, investigators examined the dynamics across provider types to determine the impact of provider setting and payer mix on biosimilar adoption.

The health care system uses the “buy-and-bill” reimbursement model because biosimilars are administered by injection or infusion. Under this structure, providers are reimbursed for biologics with an additional percentage of the product price added to cover acquisition, storage, and dispensing costs associated with care, according to the report.

This environment disincentives providers from favoring lower-cost biosimilars because reimbursement for biologics typically ranges from 6% of the drug’s average sales price (ASP) under Medicare coverage to a more robust 9% to 10% reimbursement from typical commercial plans.

“In designing this coverage model, CMS recognized this challenge and mandated that physicians who dispense biosimilars will be reimbursed at ASP plus 6% of the innovator’s price,” the authors wrote. “While this mandate was enacted to remove a disincentive for prescribing biosimilars for patients on Medicare, it does not address considerations for patients covered by commercial insurers.”

Patients with commercial insurance represent the majority of billings for most providers in the United States, the authors noted.

To better understand the impact of this biosimilar reimbursement model on providers, the authors provided an example that modeled the financial cost-recovery and gross margin providers might receive with a theoretical branded biologic and biosimilar. The authors also examined the potential impact of changes to the reimbursement structure on provider gross margin.

A physician’s office, hospital outpatient infusion suite, and a 340B hospital outpatient infusion suite were all considered for potential sites of care for an infused or injected biologic agent.

For the sake of analysis simplification, the authors made several assumptions, including that the typical provider will stock and prescribe either the branded agent or the biosimilar, but not both. Additional assumptions can be found here.

For example, an infused innovator product that costs $1000 per unit dose and a biosimilar priced at a 15% discount would result in average gross profit losses.

For an infused innovator product that costs $1000 per unit dose and a biosimilar priced at a 15% discount, the use of the biosimilar alternative and reimbursement would result in an average gross profit loss of $78 per dose in a 340B hospital, $43 in an outpatient hospital, and $9 in physician offices, according to the report.

“While this impact may seem minimal, it could add up—–a hospital treating 50 patients using 2 vials of drug per month stands to lose over $50,000 per year,” the report authors wrote.

The authors warned that the amount will only grow as biosimilars come to market.

The adoption of biosimilars will likely continue in integrated delivery networks, where providers receive a fixed case-rate for care, regardless of therapy choice. A Kaiser executive recently stated that aggressive discounts by Sandoz helped move 95% of its pediatric market share of filgrastim to the biosimilar Zarxio.

However, biosimilar adoption in a more typical provider setting will likely remain limited by the reimbursement environment, excluding a “subset of providers currently able to realize a net margin improvement through biosimilar usage,” according to Fierce Healthcare.

Although pharmacy benefit managers have taken high-profile stances on high-cost biologics, payers have been unwilling to fully exclude branded agents from formularies, or force providers to switch stable patients to biosimilars.

Overcoming these losses are possible through 2 noteworthy reimbursement models presented by the authors, in which biosimilar use is more financially beneficial for both payers and providers than the innovator biologic:

• Fixed Reimbursement: Allows the payer to “capitate” the cost of the drug by paying a fixed amount regardless of whether the innovator of the biosimilar was administered, ultimately eliminating the financial incentive for providers to use the more expensive innovator medications. Under this reimbursement model, providers realize the value of lowering their acquisition cost, while payers—–which reimburse less than they currently pay for the innovator and more than they pay for the biosimilar––reduce their drug spend.

• Differential Reimbursement: Similar to CMS’ approach, a differential model provides better reimbursement rates for biosimilars to incentivize medical benefit product choice by providers. However, only 3% of commercial payers report using different reimbursement as a management tool.

For differential reimbursement to be a viable option, there must be incentives for both payers and providers, according to the authors.

“In our analysis, we found this ‘middle ground’ possible—–payers can realize cost savings with a differential reimbursement model that provides financial incentives for providers to adopt biosimilars,” the authors wrote.

For example, if payers increase the incentive for a biosimilar by approximately 4%—–from ASP plus 10% to ASP plus 14%––it would alter the relative margin for physician offices and remove the financial disincentive of biosimilar use, according to the report. Hospitals would require more significant incentives, such as ASP plus 16%.

“Biosimilars have the potential to reduce overall treatment costs, but the current reimbursement models for these therapies present a significant obstacle for broader adoption,” the authors concluded. “While US regulation that enables substitution and interchangeability of biosimilars may be key to lower prices, increased competition, and market access for patients, the near-term adoption of biosimilars is likely going to be driven by those responsible for the drug spend—–most notably, commercial payers and pharmacy benefit managers.

“Though it may be possible for insurers to influence biosimilar uptake through restrictive formularies and benefit design, getting providers on board will require longer-term commercial reimbursement models that align hospital and physician incentives with those of the payers.”