Two Important Updates on #Zarxio and Biosimilar Reimbursement (rerun)

This week, I’m rerunning some popular 2015 posts. Click here to see the original post and comments from February 2015

Today’s rerun is especially timely. Yesterday, Zarxio launched at a reported 15% discount to Amgen’s Neupogen, the innovator reference product.

Since my original article, CMS has proposed that multiple biosimilars for the same reference product be grouped into the same J-code. See Payment for Biosimilar Biological Products Under Section 1847A in its July 2015 proposed rule (CMS-1631-P). However, my general math below still applies.

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In Zarxio: How Channel Dynamics Will Limit the First U.S. Biosimilar, I argue that reimbursement and channel dynamics will slow adoption for Zarxio. Zarxio, a provider-administered specialty drug, is a non-interchangeable biosimilar of Amgen’s Neupogen.

Today, let’s catch up on two important items regarding reimbursement for biosimilars:

• In my original article, I didn’t mention the Affordable Care Act’s special reimbursement formula, which provides additional reimbursement for the biosimilar. Below, I explain this methodology and provide a mathematical example using Neupogen and Zarxio.

• Last week, the Centers for Medicare & Medicaid Services (CMS) released a brief Q&A with new details on biosimilars. Highlights below.

Taken together, this information still supports my original conjectures about a moderate pace for adoption for biosimilars paid under the medical benefit—and implies some manufacturer pricing strategies that could influence adoption.

BIOSIMILARS AND THE AFFORDABLE CARE ACT!

In a comment on my original post, reader Michael Davitian helpfully reminded me about an important reimbursement consideration for biosimilars.

Section 3139 of the Affordable Care Act (“Payment For Biosimilar Biological Products”) states that a biosimilar approved under the 351K pathway will be reimbursed at the biosimilar’s Average Sales Price (ASP) plus 6% of the innovator drug’s ASP, rather than 6% of the biosimilar’s ASP.

Thus, providers will have an incremental financial incentive for biosimilar substitution. The magnitude of this financial benefit will depend upon the ASP gap between the biosimilar and the innovator product.

Here’s a mathematical example using the April 2015 ASP for a 480 mcg dose of Neupogen. Below, I illustrate the biosimilar's reimbursement at a 20% and 50% discount to Neupogen’s current published ASP.

[Click to Enlarge]

Observations:

• The ACA formula provides extra reimbursement to the provider. For example, if the biosimilar costs 20% less than the innovator, then the ACA formula will provide 1.4% more reimbursement than would the usual ASP+6% method. 

• The gap grows along with the biosimilar’s discount relative to the innovator drug. If Neupogen provides discounts that reduce the price gap to 10%, then the biosimilar's financial advantage is also reduced.

• The federal government's 2013 sequestration reduced Medicare's share of a drug's Part B reimbursement to ASP+4%. I'm not sure if this lower rate also applies to the biosimilar's ACA-specified markup. If so, then the biosimilar's financial advantage would be lower.

In my original Zarxio article, I missed this nuance. See this RPM Report article for more details: Biosimilar Reimbursement Under The Sequester: The Lower The Price, The Bigger The Spread.

MEDICARE PART B AND BIOSIMILARS

Last week, CMS issued an MLN Matters® article with a brief Q&A on biosimilar reimbursement in the Medicare program. Click here to read it.

The newsletter first tries to comfort us by noting: “The Centers for Medicare & Medicaid Services (CMS) is aware that the Food and Drug Administration (FDA) has approved the first biosimilar product.” Good to know!

CMS then asks and answers five questions about biosimilars and the Medicare program. Here are the highlights:

• CMS will create a separate J-code for each biosimilar, as I speculated in my original Zarxio article. 

• Before the ASP is established, Medicare will pay 106% of the biosimilar's wholesale acquisition cost (WAC) list price.

• Once the biosimilar's ASP is established, then the biosimilar’s Part B provider reimbursement will operate as I describe above.

Since each biosimilar will have its own J-code, Zarxio will not generate the same profit motivations that an interchangeable generic product does. The ACA methodology, however, adds a small incremental financial benefit for providers.

This is all theoretical until the first Zarxio bill is paid. As a wise philosopher once said: There is a difference between knowing the path and walking the path.