Introduction and Summary
Current CMS’ policy establishes one Healthcare Common Procedure Coding System (HCPCS) code for all biosimilars that rely upon one common reference product’s biological license application, and a single payment rate for all biosimilars included under that code; or, as referred to below, a single coding policy.
An analysis performed by the Biosimilars Forum (2016) estimated that switching to an alternative policy that assigns each biosimilar a unique billing code could provide an additional $3.4 billion in savings over the 2016 through 2025 timeframe compared to the current single coding policy. This is likely a lower-bound estimate of the potential savings from the alternative policy, however. In practice, the single coding policy is creating reimbursement uncertainty for providers when they purchase a biosimilar. This uncertainty appears to be reducing providers uptake of biosimilars more than anticipated in the original Biosimilar Forum’s estimates.
Specifically, providers who purchase the biosimilar first, and then bill the payer later (aka buy and bill providers), do not know whether the drug will be used for a Medicare beneficiary, or a commercial beneficiary, at the time of purchase. Due to CMS’ single coding policy that is based on the average sales price of all biosimilars that compete with a reference product, Medicare’s reimbursement for a buy and bill provider could be less than that providers actual outlays for a biosimilar.
For example, if the average sales price across all of the biosimilars was $60, and the cost of the reference biologic was $100, the buy and bill provider would be reimbursed $66 for patients covered by Medicare Part B. If the buy and bill provider paid $80 to purchase the biosimilar she prescribed (she purchased a higher cost biosimilar), then the provider loses money by prescribing this biosimilar ($14 every time the biosimilar was prescribed in this example). This potential loss is a market impediment that discourages providers from purchasing biosimilars. The weaker demand for biosimilars from providers, reduces the incentive for manufacturers to develop and compete in the biosimilar market category.
These financial disincentives created by the single coding policy have been discouraging the adoption of biosimilars in practice. As a result, it is likely that the potential Medicare Part B savings are even smaller than the original estimates from the Biosimilars Forum. It follows that the potential gain from switching to the alternative policy are even greater than these original estimates.
This part of the submission creates a model that explicitly incorporates the impact from these financial disincentives into the results from the Biosimilars Forum to provide a more comprehensive estimate of the benefits from the alternative billing policy compared to the current single coding policy.
There are two other market disincentives that also discourage the use of biosimilars. First, providers know that commercial insurers do not cover all biosimilars; in part due to exclusionary contracts with reference product producers, and in part due to the volume rebates offered to insurers from reference produce producers. Second, since private payers typically compensate providers based on the cost of the medicine, providers are incented to purchase higher cost biologic medicines.
These adverse incentives compound the uncertainty created by CMS’ single coding policy and further reduce the incentive for providers to purchase biosimilars. This weaker demand from providers also reduces the incentives for manufacturers to invest in developing new biosimilars and introducing new competition against existing biosimilars.
The existence of the exclusionary contracts also increases the influence of CMS’ reimbursement policies on the viability of the biosimilars market. Theoretically, the share of biologics covered by commercial insurers is large enough that they can substantially influence the biosimilars market. The exclusionary contracts thwart this influence, however. This diminished funding from commercial insurers leaves providers and biosimilar manufacturers more dependent on Medicare’s reimbursements to cover the costs of biosimilars, thereby leaving Medicare as the de facto market maker for biosimilars. Once these impacts from the exclusionary contracts are also considered, the adverse impacts on the development of a vibrant biosimilars market due to CMS’ single coding policy are likely to be even more pronounced.
While these disincentives will diminish the potential savings Medicare Part B can expect to receive under the current policy, they are not evaluated in the model developed in this part of the submission. Potential Medicare Part B savings are, as a result, even greater than those estimated here. Based solely on the provider disincentives created by CMS’ single coding policy, we estimate that the additional Medicare Part B savings from switching to the alternative billing policy can create savings as large as $6.2 billion to $9.7 billion, compared to the Biosimilars Forum’s estimate of $3.4 billion.
The full study can be downloaded here: Economic evaluation of alternative CMS billing code policies v.format