Shifting biosimilar costs away from Part D beneficiaries

Biosimilars are expected to be priced lower than existing biologics, and therefore reduce costs for consumers and payers. Because of Medicare Part D policies, however, beneficiaries may actually pay more out-of-pocket for the biosimilar than the higher-cost, innovator reference biologic. This may discourage use of biosimilars, reducing overall savings to the Part D program. Avalere Health has studied this issue and released a report suggesting two ways to reduce patient costs for biosimilars: (1) requiring manufacturer discounts for biosimilars, consistent with current law for branded drugs; and (2) creating a biosimilar tier that would reduce beneficiary costs for the biosimilar to the same level as the reference product.

Background

The Biologics Price Competition and Innovation Act (BPCIA), enacted as Title VII of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148), created a “biosimilar pathway” for the FDA to approve both biosimilars and interchangeable biologics. Section 7002 of the ACA sets forth the approval pathway for these biosimilar biological products.

Because of the high cost sharing to Medicare Part D beneficiaries in the coverage gap (donut hole), section 3301 of the ACA included a provision to begin closing the gap by gradually reducing beneficiary cost-sharing to 25 percent by 2020. Beneficiaries reach the coverage gap once they incur a certain amount of total drug spending. In 2016, the coverage gap begins after a beneficiary has incurred $3,310 in total drug costs. While in the coverage gap, the beneficiary pays 100 percent of their prescription drug costs until they reach the catastrophic coverage limit of $4,850. Once a beneficiary reaches the catastrophic coverage limit, they pay $2.95 for a generic drug and $7.40 for brand name drug or 5 percent of the cost of the drug, whichever is greater.

Another part of the effort to reduce cost sharing in the coverage gap is the Coverage Gap Discount Program (CGDP), which requires manufacturers to provide a 50 percent discount on brand drugs dispensed during the coverage gap. Both the manufacturer’s 50 percent discount and the beneficiary’s out-of-pocket costs count toward true out-of-pocket costs (TrOOP). Once the beneficiary reaches the TrOOP cost of $4,850 in 2016, he or she enters the catastrophic phase and exits the coverage gap.

The CGDP, however, does not apply to generic drugs or biosimilars in the coverage gap. Therefore, in 2016, Part D beneficiaries are responsible for 58 percent of costs associated with generic and biosimilar medications in the coverage gap and the Part D plan is responsible for all remaining spending in the gap. And because there are no other stakeholders contributing to the TrOOP of the Part D beneficiary, this can lead to patients paying more for a biosimilar product than for the innovator biologic product.

Avalere study

The Avalere study illustrated the cost sharing differences between a reference product and its biosimilar by comparing a Part D beneficiary that takes an innovator biologic medication with another beneficiary taking the biosimilar. The study assumed that the Part D innovator biologic had an annual treatment cost of $30,000 and the biosimilar was discounted by 25 percent. The Avalere study found that a Part D beneficiary will pay approximately $1,536 more per year in out-of-pocket costs for the lower-cost biosimilar product than for the reference product.

Policy options

To avoid this Part D cost-sharing problem for biosimilars, Avalere suggests two policy options, both of which would require legislation:

  • Create a biosimilar coverage gap discount: Changing the statutory language to direct biosimilar manufacturers to pay 50 percent of drug costs in the coverage gap would result in lower out-of-pocket costs for patients, as well as additional savings to the federal government. The additional manufacturer contribution would also count towards beneficiaries’ TrOOP threshold, allowing beneficiaries to reach the catastrophic phase more quickly. With the additional contribution from biosimilar manufacturers, the program costs in the coverage gap would also be reduced.
  • Create a biosimilar tier: Although biosimilars are generally less expensive than innovator biologics, Avalere believes that they will usually be subject to the same cost sharing applied to innovator products on the specialty tier. If Part D plans were required to create a “biosimilar tier,” that would lower patient cost-sharing for a biosimilar because the total out-of-pocket costs would not exceed those for the reference product. This would result in the Part D benefit paying more to cover the lower cost sharing associated with a “biosimilar tier.”

Conclusion

According to Avalere, both policy options would result in savings to patients and overall savings to the Part D system. Under the first policy, requiring manufacturers to pay coverage gap discounts for biosimilars would shift the costs away from the government, patients, and health plans to manufacturers. Under the second policy, creating a separate biosimilar tier would shift costs to health plans and the federal government, as patient cost sharing would be reduced.