On March 6, 2015, the U.S. Food and Drug Administration (FDA) approved the first biosimilar in the United States. The Centers for Medicare & Medicaid Services (CMS) recently issued three guidances regarding reimbursement for biosimilars under Medicare Parts B and D, as well as under Medicaid. These guidances address questions that have arisen regarding reimbursement policies that CMS will implement for biosimilars. However, a number of issues remain outstanding and will need to be addressed by CMS in future guidances or regulations.

Medicare Part B

Medicare Part B generally covers drugs and biologicals that are not usually self-administered, including those that are administered in a physician’s office or hospital outpatient department. On March 31, 2015, CMS issued a “Medicare Learning Network (MLN) Matters”(SE1509) that addresses frequently raised questions regarding biosimilar reimbursement under Medicare Part B. CMS clarifies, among other things, that the agency will incorporate biosimilars that are approved under the abbreviated biological approval pathway into the average sales price (ASP) payment methodology. Initially, Medicare will pay 106 percent of the product’s wholesale acquisition cost (WAC). Once ASP information is available for the biosimilar product, Medicare will pay an amount equal to ASP for the product plus 6 percent of the reference product, as required by the Affordable Care Act (ACA).

CMS anticipates including the newly approved biosimilar in the next quarterly Healthcare Common Procedure Coding System (HCPCS) tape release, appearing in the claims processing system on July 1, 2015. Reimbursement for the biosimilar will be effective retroactively to the FDA approval date. CMS will create a separate code to distinguish the biosimilar from the reference product and is “considering policy options for coding of additional biosimilars.”

The “MLN Matters” notes that CMS will release further guidance on coding and incorporation of biosimilars into the ASP payment methodology in the future.

Medicare Part D

Medicare Part D generally covers self-administered drugs from every therapeutic category of prescription drugs, with formularies varying to a certain extent by plan. On March 30, 2015, CMS issued to Part D sponsors a memorandum on coverage of biosimilars under Part D that clarifies the application of formulary review policies, low-income subsidy (LIS) and catastrophic cost sharing rules, and Coverage Gap Discount Program requirements for biosimilars. The memo also notes that follow-on biological products approved by the FDA under Section 351(k) of the Public Health Service Act will be listed in a new Purple Book: Lists of Licensed Biological Products with Reference Product Exclusivity and Biosimilarity or Interchangeability Evaluations.

Regarding formulary review, CMS clarifies that reference and biosimilar products generally will not be considered different drugs for purposes of satisfying the two distinct drugs requirement for each of the categories and classes submitted by a Part D sponsor.1 CMS also provides that biosimilars may be added to Part D plan formularies at any time as a formulary enhancement. The addition of a biosimilar (or the removal of the reference biological product) will be considered a non-maintenance change, to be evaluated on a case-by-case basis. For purposes of the Part D transition supply and notice requirements, CMS states that biosimilars and the reference biological product should be treated as different products.

For the purposes of LIS and catastrophic cost sharing rules, CMS clarifies that biosimilars do not meet the CMS definition of either a generic drug or a multiple source drug. Biosimilars are therefore subject to the higher maximum copayments for LIS eligible individuals applicable to all other Part D drugs. In 2015, the maximum copayments for LIS individuals were set at either $3.60 or $6.60, depending upon an individual’s subsidy level. At the same time, CMS clarifies that the lower minimum copayments applicable to non-LIS eligible individuals in catastrophic coverage under the standard Part D benefit would not apply to biosimilars. Nevertheless, CMS“generally expects”that individuals who are not eligible for LIS will pay the 5 percent coinsurance for biosimilars in the catastrophic portion of the standard Part D benefit.

CMS also clarifies that biosimilars are non-applicable drugs for purposes of establishing coverage gap cost sharing under the basic Part D benefit. Biosimilars are therefore not discounted in the coverage gap or otherwise subject to Discount Program requirements.

Medicaid

Reimbursement for drugs and biologicals under Medicaid—and the rebates established under this program—have far-reaching impacts for manufacturers, as they may not charge any 340B entity a price greater than that derived under the Medicaid rebate formula. On March 30, 2015, CMS issued guidance on biosimilars and the Medicaid Drug Rebate (MDR) Program.2 Through this guidance, CMS clarifies that biosimilars fall within the definition of “single source drugs”for prposes of the MDR program. As a result, biosimilars will be subject to a 23.1 percent rebate (based on average manufacturer price (AMP)) and potentially subject to a penalty for any increases in AMP over inflation.

CMS specifically suggests that cost savings may be achieved by states by applying traditional drug utilization and cost management tools to biosimilars, as well as through supplemental rebate agreements between states and manufacturers. CMS also notes that prescribers may not be able to “simply write the proprietary name of a reference biological product and expect the pharmacist to substitute it with the biosimilar biological product,” as may be the case today with certain brand name and generic chemical compounds. Finally, to ensure “safe and efficacious use” of biosimilars, CMS encourages states to use drug utilization review programs and pharmacy and therapeutics (P&T) committees to inform physicians and pharmacists about appropriate prescribing and dispensing of biologics, including biosimilars.

Key Outstanding Reimbursement Issues

Beyond the issue areas on which CMS has already noted additional guidance is forthcoming, there are several key issues around biosimilar reimbursement which have not yet been addressed by CMS, all of which may be ripe for additional action from Congress.

  • Interchangeability. CMS’s memo to Part D sponsors specifically notes that additional guidance for “interchangeable” biological products may be issued at a later date. Neither CMS nor the FDA has provided final guidance or regulations on interchangeability.
  • Medicare Part B. The “MLN Matters” guidance does not address how biosimilars will be reimbursed in all Part B settings. The guidance is notably silent on reimbursement policies for drugs provided in hospital outpatient departments, including the availability of a transitional add-on payment. Additional guidance from CMS may be forthcoming; the annual hospital outpatient regulations may serve as one vehicle for CMS to address these remaining issues. The next hospital outpatient proposed rule is anticipated in July.
  • Medicare Part A. The administration and procurement costs of drugs and biologicals for use in certain provider settings, such as a hospital inpatient department, may subject the drug or biologic to payment under Medicare Part A. In general, Part A pays for such drugs or biological products as part of an overall prospective payment, akin to a “bundled payment.” CMS has not yet addressed how these payment systems will be updated to account for biosimilars, and additional guidance may be forthcoming. Research suggests that “it may be challenging to adjust [prospective] payment rates to reflect lower biologic prices,”3 potentially impacting provider incentives to use certain biological products.
  • Bundled Payments and Demonstration Projects. As CMS continues to implement an array of payment reform demonstration projects (largely through the Center for Medicare and Medicaid Innovation (CMMI)), guidance on how payments for biosimilars will be made under these programs will be necessary. 

These and other issues will impact the acceptance of biosimilars by providers and patients alike, dictating the clinical success of biosimilars as well as their ability to drive down overall health care spending. We continue to closely monitor how CMS is regulating and how Congress is legislating on these new products.