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.


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.”


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.

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Reversal of fortune: Sandoz seeks Supreme Court review in Amgen biosimilars battle

Sandoz filed a petition for a writ of certiorari, asking the Supreme Court to review the Federal Circuit’s interpretation of the Biologics Price Competition and Innovation Act’s (BPCIA) “notice of commercial marketing” provision. In its February 16, 2016, filing, Sandoz asked the Court to decide the validity of the Federal Circuit’s ruling in Amgen v. Sandoz, which held that the 180-day notice of commercial marketing can only be given after a proposed biosimilar product receives FDA approval (see Court interprets biosimilar ‘enigma’ in favor of abbreviated biologic license applicant, Health Law Daily, July 22, 2015).

Just last month Amgen declined to file its own free-standing cert petition. Under the Supreme Court’s rules, however, Amgen could file a “conditional cross-petition,” requesting that if the Court chooses to take up Sandoz’s petition, it would address the issue Amgen lost before the Federal Circuit, specifically whether the BPCIA’s patent “dance” was mandatory.

In an interview with Wolters Kluwer, Courtenay C. Brinckerhoff, a partner with Foley & Lardner and editor of Foley’s PharmaPatents blog, noted that the Supreme Court may be inclined to hear the case because (1) Sandoz presented an issue of statutory construction of an important provision of the BPCIA; and (2) district courts are already applying the Federal Circuit’s interpretation of the BPCIA in other biosimilars cases.

Federal Circuit ruling

The BPCIA, which was passed in 2010 as sections 7001-7003 of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148), created an abbreviated pathway for FDA approval of a “biosimilar” biologic product. Amgen brought originally brought suit against Sandoz in federal court asserting various violations of Amgen’s approved license for its cancer-fighting biologic Neupogen® (filgrastim) and infringement of Amgen’s patent for a particular method of using filgrastim. The FDA previously accepted Sandoz’s application for the filgrastim biosimilar Zarxio in July 2014 and approved the application in early 2015 (see FDA enters new era with approval of first biosimilar, Health Law Daily, March 6, 2015). Although the BPCIA includes a complicated process for addressing patent disputes surrounding biosimilar products, known as the “patent dance,” Sandoz chose not to engage in that process (see Shall we dance? Biosimilars step toward new legal and regulatory future, Health Law Daily, August 5, 2015).

Amgen sued Sandoz for violating the BPCIA. Upon reviewing the lower court’s decision, the Federal Circuit decided that an abbreviated biologic license application (aBLA) applicant did not need to engage in the patent dance with the reference product sponsor (RPS), but did need to comply with the pre-marketing notice provision of 42 U.S.C. §262(l)(8). Specifically to the latter, the appellate panel held that notice of commercial marketing, to be effective under the BPCIA, must be given only after the product is licensed by the FDA. In a dissent from this portion of the decision, Judge Chen wrote that the majority’s position extra-statutorily extended RPS’ 12-year market exclusivity as established in the BPCIA by an additional six months.

Commercial marketing notice

The majority’s decision in Amgen v. Sandoz acknowledged that its ruling could establish additional six months exclusivity for the RPS, but found that it was consistent within the four- and 12-year exclusivity periods in the BPCIA. Under the Federal Circuit’s interpretation of 42 U.S.C. §262(l)(8)(A), actions authorized by §262(l)(8)(B) cannot be commenced until the biosimilar product has been approved. Sandoz’s argument is that this interpretation is not supported by either the BPCIA’s language or purpose. According to Brinckerhoff, the majority’s rationale seems to rest on the assumption that, if a biosimilar application is filed during the 12-year exclusivity period, the FDA will “license” the biosimilar product before the 12-year period has run, in which case the pre-marketing notice could be given before the 12-year period has run. However, the 12-year period is embodied in 42 U.S.C. §262(k)(7)(A), which states that “[a]pproval of [a biosimilar application] may not be made effective” until the 12-year period has run. Thus, Brinckerhoff said, it is not clear that the FDA has the statutory authority to “license” a product before the 12-year period has run.

In addition, the appellate ruling leaves some uncertainty about whether an aBLA applicant engaging in the BPCIA’s patent dance needs to provide this notice of commercial marketing to an RPS if the patents cannot be litigated until after FDA approval. Brinckerhoff said one purpose of the pre-marketing notice is to give the RPS an opportunity to seek a preliminary injunction based on patents that were not litigated in the patent dance litigation, for instance with patents that were not selected after the exchange of patent lists. Thus, there is still some benefit in the patent dance, as it provides a mechanism to litigate patents before the biosimilar is approved.

Biosimilar availability

Sandoz also noted in its petition that the Federal Circuit’s ruling would create a delay in availability for all biosimilars. Brinckerhoff stated that whether the post-approval notice requirement itself would keep a biosimilar product off the market in another case would depend on the circumstances, including whether the RPS had obtained a preliminary injunction based on any patents being litigated. She noted that it was possible that in other cases the notice requirement would be the only factor keeping the biosimilar product off the market.

Patent dance

As discussed earlier, while not addressed in Sandoz’s petition, the Federal Circuit also held that the patent dance was optional. A consequence of an optional patent dance is that the biosimilar applicant would be subject to patent infringement action. By not filing a petition, Amgen implied that it was content with an optional patent dance.

Under an optional patent dance scheme, Brinckerhoff said that the RPS can benefit because it can bring an immediate declaratory judgment action without having to go through the patent dance procedures. The RPS can litigate all patents that it believes should be litigated instead of being limited to the patents agreed upon after the exchange of patent lists. Conversely, biosimilar applicants may find it beneficial not to share the confidential information that may be in their biosimilar applications with the RPS during the patent dance, or at least be able to keep the information confidential unless and until the RPS initiate litigation (when the application may be discoverable).

Brinckerhoff also said that the latter strategy presented its own problems for the biologic applicant. If the patents are not litigated until later in the approval process or after the product is approved, the biosimilar applicant may have to choose between delaying market entry until the patent litigation is resolved or launching at risk, e.g., entering the market at the risk of being held liable for willful patent infringement. Brinckerhoff said that given the costs of biologics and the risk of treble damages, a launch at risk could be associated with significant financial risk.