Financial disincentives to biosimilar adoption

In some therapeutic areas, such as oncology, there is a financial incentive for both physician practices and institutions to use more expensive originator biologics rather than biosimilar drugs, as the markup, and thus profitability to the provider, is higher. According to a Memorial Sloan Kettering Cancer Center report,46 the markup of an infused medicine is greater in an inpatient setting than in a physician office, providing an incentive for institutions able to administer drugs in a setting that qualifies as inpatient. According to Jain et al,46 hospitals, in particular those participating in the 340B Drug Pricing Program,47 are most likely to profit from expensive medicines because the 49% collective profit associated with drug administration covered under Medicare Part B for drugs is unevenly allocated across doctors and hospitals. The blended profit margin translates into ~16% for doctors, 140% for all hospitals, and 210% for 340B hospitals; the difference is mainly due to commercial insurance contracts and steep discounts. In taking advantage of these profits, medication administration has shifted from physician offices to hospitals, accompanied by acquisitions and consolidation.48 These provision and reimbursement practices may result in disincentives to biosimilar uptake in these settings, although CMS has recently tried to neutralize this differential billing activity through a congressionally mandated policy on site-neutral payments for ambulatory care.49

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Peculiarities in Medicare Part D reimbursement policy may result in biosimilars with acquisition costs lower than that of their original biologics having higher, rather than lower, out-of-pocket costs for patients.50,51 This occurs because manufacturers of branded products are expected to offer a discount for the coverage gap (donut hole), which does not apply to nonbranded products. In the coverage gap, enrollees currently pay 45% of the discounted price for branded drugs; their responsibility declines to 25% in 2020. Currently, launched biosimilars (eg, filgrastim and infliximab) are addressed under Part B (medical benefit); thus, patient costs are not affected by the coverage gap. However, when monoclonal antibody biosimilars (eg, recently approved etanercept and adalimumab) reach the US market, they will be covered under Part D,51 which may result in a disincentive to biosimilar uptake.

Uncertainty over cost savings with biosimilars

The uptake of biosimilars in the USA may be hindered by uncertainties regarding the potential savings they offer and possibly by counterdetailing from companies manufacturing originator biologics.45 The authors of the Milliman study52 predict that if an employer with 10,000 insured employees and dependents spends on average $51.4 million on health care, the expected cost for biologics would be $2.67 million, or 5.2% of their total spend, the maximum savings potential if biosimilars were available at no cost. A 30% discount for biosimilars would represent ~$800,000 savings, or 1.6%; however, over time, the introduction of new biologics may work against the savings accompanying biosimilars. If financial incentives to use biologics and biosimilars lead to overuse, aggregate costs could go up despite lower unit drug costs, particularly where disease management is effective using lower-cost medications. This possibility creates additional uncertainties around cost savings from biosimilars.

Overcoming barriers to biosimilar adoption and health care reform

Changing perceptions of biosimilars in the USA

The speed of regulatory approval may be a factor in biosimilar penetration into the US market.53 Litigation by originator manufacturers in the USA may also delay entry. As an increasing number of biosimilars overcome these hurdles, the readiness of US stakeholders to accept biosimilars will be determined in part by the availability of additional evidence about their safety and effectiveness. As the body of evidence needed for the FDA approval of biosimilars is at the molecular level rather than at the clinical level, there is some concern that there is less clinical evidence from randomized controlled trials than for the originator biologic. Therefore, studies on postapproval safety and real-world comparative effectiveness will be particularly important to instill confidence and demonstrate the value of biosimilars. Real-world administrative data that differentiate and track biosimilar use as well as costs can be used to measure the impact of wider access to biologic and biosimilar treatments, the potential evolution of the treatment algorithm, and the overall costs to the patient and the payer. However, real-world data collection is not without challenges, such as cost, time, and potential for bias.

As biosimilar infliximab has been available in Europe for several years for the treatment of Crohn’s disease, gastroenterologists in Europe are more knowledgeable about and experienced in using biosimilars. It is uncertain whether this broad adoption of biosimilars in Europe will be echoed in the USA.54 A US survey of specialty physicians prescribing biologics conducted between November 2015 and January 2016 found a general lack of understanding and pressing need for education about biosimilars, particularly about the FDA approval process; the definition, safety, and efficacy of biologics versus biosimilars; and regulatory guidance for indication extrapolation, interchangeability, and pharmacy-level substitution.45 The generic market serves as an example of how practice changes as clinicians become more familiar with these alternate products (in particular, the uptake of generics such as warfarin and thyroid medication).55–57 Biosimilar uptake ultimately depends upon education – increased understanding about biosimilar production, regulation, and mechanism of action as well as experience in clinical practice.

Financial incentives to biosimilar uptake in the USA

Financial incentives for using less expensive treatments are now available in some US health care settings. With new value-based reimbursement demonstration projects such as the Oncology Care Model (OCM), health care professionals will lose incentive to use more expensive treatments. The Center for Medicare & Medicaid Innovation has developed the OCM payment and delivery model to improve the effectiveness, efficiency, quality, and coordination of oncology care at the same or lower cost to Medicare.58 In cases where the place of service, not baseline cost, drives profit, contracting between biopharmaceutical manufacturers and health care providers (such as through group purchasing organizations) could provide contracted discounts to large institutions. This practice would maintain provider margins when using lower-cost drugs such as biosimilars. Consolidation of health care provider services may result in a speedier and more efficient adoption of biosimilars because of greater consistency across formularies and reduced administrative burden.

Incentives may be required to encourage patients to switch to biosimilars, including passing on some of the expected savings due to lower drug acquisition costs through lower out-of-pocket costs. In order to address the Medicare Part D donut hole situation, where out-of-pocket costs can be higher with lower-cost biosimilars than with originator biologics, Avalere Health suggests either requiring manufacturer discounts for biosimilars when Part D beneficiaries are in the coverage gap or creating a formulary tier for biosimilars that would require reduced cost sharing compared with biologics in the traditional specialty tier.50,51