US Reimbursement of Biosimilars

Medicare Part B was established as part of the Medicare plan‟s coverage for medically necessary services for patients outside of the hospital, acute care setting.

Medicare Part B covers lab tests, procedures, and doctor visits deemed medically necessary or preventative, as well as prescription drugs and vaccines which patients are unable to administer themselves.⁵¹ In 2012, Medicare Part B‟s fee for service

reimbursements benefited 32.8 individuals, costing $166.6 billion US (approximately 30% of the total Medicare budget).⁴⁹

Some of the top spending items in Medicare Part B are biologics which require infusions at clinics. According to Government Accounting Office (GAO), the 8 highest expenditure pharmaceuticals in Medicare Part B in 2010 were biologics. These 8

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products accounted for $8.3 billion US in spending and included monoclonal antibody products such as Rituxan, Lucentis, Avastin, and Remicade.⁵²

4.2.2 Medicare Part B Biosimilars Policy

Biosimilars will likely be introduced in reference to biologics that are existing benefits under Part B, including the high expenditure biologic products previously listed.

The approval of biosimilars for benefits where the reference biologic is already a Medicare Part B benefit should not require extensive review by Part B plan administrators.⁵³

The main mechanism Medicare Part B uses with respect to reimbursement of prescription drugs is setting a maximum price with which in reimburses providers of the prescription drug. For brand name drugs and biologics, the maximum reimbursement price is 106% of the lower of the Average Sales Price (ASP) and the Wholesale Acquisition Cost based on calculating ASP for all drugs belonging to the same billing code.⁵⁴

The definition of biologic and biosimilar products included in the calculation is an important factor to determining the eventual weighted average price and prescribing practices that are incentivised by the price change. If lower cost biosimilars are included in the same billing code, thus decreasing the average price, prescribing would be

incentivised toward lower cost biosimilars because they would offer higher margin for the prescriber based on the difference between the wholesale cost and reimbursement price. However, according to legal experts, the exact criteria for including biosimilars in the same billing code and ASP calculations has not yet been determined by regulation.⁵⁴ One issue limiting further clarification of the Medicare Part B pricing regulation is the

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FDA has not given specific rulings on determining interchangeability of biosimilars with the reference biologic (discussed in Chapter 3 on regulations).

4.2.3 Medicare Part D and the Role of Pharmacy Benefit Management

Medicare Part D subsidizes private drug insurance for patients eligible for Medicare. The government role in this subsidized insurance system is to set regulation under which partnering insurance companies operate. For example, reimbursement policies were introduced in the 2010 Affordable Care Act with the aim of reducing the Medicare Part D coverage gap between initial insurance coverage and catastrophic drug costs coverage (known as the “donut hole”). Beginning in 2013, drug companies must provide discounts to patients within the coverage gap, with the discounts also counting towards the accumulated costs needed to qualify for catastrophic coverage.⁵⁵

Medicare Part D is a large funder of biologics that may be administered by patients at home (in contrast to infusion products funded by Medicare Part B). The biologics, Humira and Enbrel which are self-injectable treatments for Rheumatoid Arthritis, are covered by Medicare Part D. These biologics were expected to take significant market share from the Part B covered biologic, Remicade, when Medicare Part D began coverage in 2006. However, research found mixed results, with Remicade maintaining its share of use when coverage under Part B was more generous. More low-income individuals were likely to initiate biologic treatment on Humira and Enbrel because they received more assistance from Medicare to cover the otherwise high out-of-pocket costs for these treatments.^56,57

Pharmacy Benefit Management (PBM) organizations have an important role in administering drug insurance for much of the US market, including for patients under Medicare Part D. PBM began by providing pharmacy claims processing services to

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employee benefit health plans in the 1990s. PBM have since expanded into managing networks of pharmacies that accept negotiated discounts on drug prices and dispensing fees for plan members. An estimated 71% of the US population are on private insurance with PBM.⁵⁸

Medicare Part D was not found to have any specific policies or regulations directed to the reimbursement of biosimilars. However, PBM have an important role in determining the reimbursement policies for Medicare Part D patients, and PBM have a range of policies directed toward specific drugs or classes of drugs including biologics and biosimilars. The following policy tools PBM use can be applied to many classes of drugs:

 Formulary development and management;

 Generic substitution;

 Therapeutic interchange;

 Rebates and discounts.⁵⁸

PBM manage a formulary which includes all treatments it determines to be

“worth” covering as insurance benefits for patients. Benefit managers may use clinical and pharmacoeconomic evaluations to determine which treatments should be coverage and under which type clinical criteria (for pre-authorized coverage). In this role, PBM act similar to national review agencies in countries with forms of public health

insurance (see sections on EU countries and Japan).

Generic substitution and therapeutic interchange policies can shift utilization to lower cost pharmaceuticals deemed bio- or therapeutic- equivalence. PBM‟s main tool to shift behavior is setting different co-pay rates, with lower rates for treatment that save the drug plan more money. Sometimes the costs of these treatments are kept

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confidential with hidden discounts and rebates so that manufacturers can maintain higher published prices.

PBM have been aggressive in lowering costs with generic substitution.⁵⁸ With biosimilars entering the market, they will make use of similar substitution policies to shift utilization from higher cost originator biologics to biosimilars.⁵⁹

4.3 Europe Reimbursement of Biosimilars. Comparison of Germany, France, and