The health care reform legislation enacted in March 2010 included within it the “Biologics Price Competition and Innovation Act of 2009,” (BPCIA) adding Sections 351(k)-(m) to the Public Health Service Act. The BPCIA authorizes the FDA to issue licenses for “biosimilar” products under an abbreviated application that relies in part on data or information in an application for a different biological product (the reference product) already licensed under Section 351 of the PHSA.

The BPCIA instructs the Centers for Medicare & Medicaid Services (CMS) to reimburse payment for a biosimilar at the sum of (1) the average sales price of all National Drug Codes assigned by the FDA for such product, plus (2) 6 percent of the “amount determined” for the reference product (i.e., the lesser of the average sales price or the wholesale acquisition cost). Because of this reimbursement formula, manufacturers that have a choice should choose the reference product with the greatest Medicare reimbursement. And while perhaps the reimbursement formula is seemingly straightforward enough, as is often the case, the definitions of some of these terms can be quite complicated, as discussed below.

“Average Sales Price” Calculation for Biosimilars

In general, the ASP is the volume-weighted average of the average sales prices for all products included within the same “multiple source drug” billing and payment code, determined by:

  1. computing the sum, for each National Drug Code assigned to such products, of (a) the manufacturer’s average sales price determined by the Secretary of Health and Human Services (without dividing such price by the total number of billing units for the National Drug Code for the billing and payment code) multiplied by (b) the total number of units (such as capsules, tablets, milligrams, or molecules) specified by the manufacturer sold; and 
  2. dividing the amount under (1) above by the sum, for each National Drug Code assigned to such products, of (a) the total number of units specified by the manufacturer sold multiplied by (b) the total number of billing units (the identifiable quantity associated with a billing and payment code as established by the Secretary of HHS) for the National Drug Code for the billing and payment code.

The payment amounts shall be updated on a quarterly basis and shall be applied based upon the manufacturer’s average sales price calculated for the most recent calendar quarter for which data is available.

The “manufacturer’s average sales price” is defined as (a) total sales to all purchasers in a calendar quarter in the United States for the product divided by (b) the total number of units of the product sold by the manufacturer in the quarter. The total sales include volume discounts, prompt pay discounts, cash discounts, free goods that are contingent on any purchase requirement, chargebacks, and most rebates. The Secretary of HHS may include in the average sales price other price concessions, which may be based on recommendations of the Inspector General, and that would result in a reduction of the cost to the purchaser.

Special provisions apply during the first quarter of sales where data on sales prices may not be sufficiently available. Quarterly calculations may also be adjusted based on lag in the reporting of information. Excluded from the calculation are sales exempt from “best price” and sales at “nominal charge,” as defined in the Public Health Service Act.

“Amount Determined” Calculation for Reference Product

The “amount determined” for the reference product (upon which the 6 percent addition to the ASP is based for reimbursement) is the lesser of (a) the average sales price for all National Drug Codes assigned to the reference product using the formula described above and (b) the “wholesale acquisition cost” for all National Drug Codes assigned to such product.

The “wholesale acquisition cost” is defined as the manufacturer’s list price for the drug or biological to wholesalers or direct purchasers in the United States, not including prompt pay or other discounts, rebates, or reductions in price, for the most recent month for which the information is available, as reported in wholesale price guides or other publications of drug or biological pricing data. The same volume-weighted methodology for calculating the average sales prices is used to calculate the wholesale acquisition cost.

Clearly, the process for calculating the reimbursement for biosimilars is not a simple exercise. There are many complexities, and manufacturers should take care when determining the likely reimbursement rates for any particular product.

Medicare Coverage Determinations

Of course, to be eligible for Medicare reimbursement in the first place, there must be a “coverage determination” finding that use of an item or service is “reasonable and necessary.” Most decisions as to whether to provide coverage are made at the local level by clinicians at the contractors that pay Medicare claims, such as BlueCross BlueShield. A list of existing contractors and local coverage determinations is available on the CMS website.

In most cases the reference product will likely have already been through the coverage determination process, paving the way for reimbursement for the biosimilar product. However, for those rare occasions when the biosimilar product leads the way at CMS, manufacturers seeking a local coverage determination should contact a local contractor to determine the relevant information.

In certain cases, CMS may deem it appropriate to develop a national coverage determination (NCD) for an item or service to be applied on a national basis for all Medicare beneficiaries meeting the criteria for coverage. CMS initiates the NCD process by “opening” the NCD via a posting on the CMS coverage website. Development of a complete, formal request for an NCD can be initiated either by an outside party or internally by CMS staff. Outside parties are encouraged by CMS to engage in preliminary discussions with the agency regarding issues that may affect review of their requests. A requestor may be a Medicare beneficiary, manufacturer, provider, supplier, medical professional association, health plan, or any other party.

CMS itself may initiate an NCD in certain circumstances, including but not limited to:

  • The health technology represents a substantial clinical advance and is likely to result in a significant health benefit or a significant impact on the Medicare program.
  • Providers, patients or other members of the public have raised significant questions, supported by CMS’s initial review of available data, about the health benefits of currently covered items or services, specifically regarding the Medicare population.
  • Local coverage policies are inconsistent to the detriment of Medicare beneficiaries, such as when the variation is not related to local differences in the capabilities of health care providers to use the technology effectively which can be resolved over time through provider training and education or through the local coverage process.

CMS may request an external “technology assessment,” the primary purpose of which is to evaluate the clinical and scientific evidence pertaining to the clinical benefits and risks of the technology. Certain issues may also be referred to the Medicare Evidence Development and Coverage Advisory Commission (MEDCAC).

If neither a technology assessment nor referral to the MEDCAC is necessary, CMS has six months to render a proposed decision on a request for coverage. If a technology assessment or referral to the MEDCAC is made (and no clinical trial is requested), CMS has nine months to issue a proposed decision. The proposed decision is posted on the CMS website (or other appropriate means) for a 30-day public comment period.

A final decision will be issued not later than 60 days after the conclusion of the comment period. While the necessity for an initial Medicare coverage determination for a biosimilar should be rare, familiarity with the process will help manufacturers understand the broader market in which they operate and may even become part of a regulatory strategy seeking to maximize reimbursement.