Study: Medicare Consolidated Biosimilar Payment Codes Would Save Money

December 2, 2021

Researchers report findings that suggest a different reimbursement system for Medicare Part B biologics could lead to significantly more robust savings.

A Medicare reimbursement model for biologics and biosimilars that incorporated price competition would have reduced spending on 6 biologics by 27%, or $1.6 billion, from 2015 to 2019. Adopting this model in the future could lead to substantial savings, according to researchers at a health care policy think tank.

Biologic therapies account for most of Medicare Part B’s prescription drug spending and spending growth (80% of spending in 2017 and 92% of spending growth from 2006 to 2017), according to the study in JAMA Network Open by Sean Dickson, director of health policy at West Health Policy Center in Washington, DC, and Tyler Kent, a data scientist formerly with the West Health Institute in La Jolla, California.

Despite these findings, price decreases of biologic and biosimilar products in Medicare Part B have been minimal, even with biosimilar competition, they write.

The researchers attribute the lack of price drops to Medicare’s policy of reimbursing for biologics and biosimilars at 100% of each therapy’s average sales price (ASP) plus 6% of the reference product’s ASP, which they say encourages clinicians to select the highest-cost option for the greatest reimbursement.

Proponents of the current system of 100% plus 6% of the reference drug’s ASP contend it removes the bias toward using the higher-cost product. The Community Oncology Alliance, an association of independent oncology practices, has asserted that a common reimbursement code for reference products and biosimilars would encourage “race-to-the-bottom” pricing that would make drug supply chains unstable.

By comparison with biologics, brand-name and generic drugs are reimbursed at 106% of the weighted ASP of the brand-name and all approved generic products, incorporating the lower generic drug prices into the reimbursement and encouraging clinicians to select the lowest-cost option.

The authors advocate a bundled biosimilar reimbursement model that would similarly reimburse both innovator biologics and biosimilars under a single billing code. They calculate it would have reduced spending on 6 top biologics—filgrastim (Neupogen), infliximab (Remicade), pegfilgrastim (Neulasta), bevacizumab (Avastin), trastuzumab (Herceptin), and epoetin alfa (Epogen)—by $1.1 billion over 4 years, while lowering spending on biosimilars by $500 million.

They also estimate that adopting a related, least-costly alternative reimbursement policy would have saved between $1 billion to $7.5 billion in 2020.

“This potential for substantial, greater future savings emphasizes the importance of rapidly implementing the bundled biosimilar reimbursement model to take full advantage of the price reductions that are associated with new biosimilar entrants,” they write.

“Moreover, rapid adoption would encourage additional biosimilar development, as biosimilars would be better able to compete on price under the bundled biosimilar reimbursement model compared with the current policy."

About $1.3 billion of the savings on the 6 therapies would accrue to the Medicare Part B program, which covers drugs administered by clinicians in an outpatient hospital or clinic setting. The remaining $300 million would offset beneficiary cost sharing, which would reduce costs for Medigap insurance plans and eventually lead to lower premiums, the authors say.

They note that the pharmaceutical industry argues the current billing code system for biologics and biosimilars is needed to incentivize biosimilar development and marketing. But they argue that “given the relatively low uptake of biosimilars in the Medicare Part B program and the lack of incentives for drug manufacturers to compete on price, the current policy appears to be insufficient in encouraging appropriate competition and price reduction.”