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Biosimilar drugs often translate to lower provider profits, says Navigant analysis

One of the main culprits is the "buy-and-bill" reimbursement model for infused therapies.

Jeff Lagasse, Associate Editor

Biosimilar drugs have the potential reduce the cost of treatment with expensive biologic medications, but to date that hasn't promised savings for most providers. One of the main culprits, according to a new Navigant analysis, is the "buy-and-bill" reimbursement model for infused therapies.

While the Centers for Medicare and Medicaid Services incentivizes the use of biosimilars through differential reimbursement, private payers generally don't, so adopting low-cost biosimilars typically leads to a reduction in profits for most providers.

This is illustrated using a hypothetical scenario: In an infused innovator product costs $1,000 per unit dose, and a corresponding biosimilar is priced at a 15 percent discount, adopting that biosimilar could lead the average physician office to lose $9 in gross profit per dose, per Navigant's calculations. Outpatient hospitals could lose $43 per dose and 340B or disproportionate share hospitals could lose as much as $79 per dose.

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Individual providers with 50 patients on therapy, meanwhile, could stand to lose as much as $50,000 per year, and those losses would grow with multiple biosimilars coming to the market. Considering a single innovator brand such as Remicade, which was used to treat more than 130,000 Americans in 2016, broad adoption of a biosimilar could slash profits as much as $100 million across providers.

The biosimilars that have launched in the U.S. so far are infused or injected products; as such, they're reimbursed to providers as "buy-and-bill" therapeutics. Under this structure, providers are reimbursed for biologics with an additional percentage of the product price added to cover the acquisition, storage and dispensing costs associated with care delivery.

Reimbursement typically ranges from a CMS-mandated 6 percent of the drug's average sales price under Medicare coverage -- about 4.3 percent under the current 2011 Budget Control Act sequestration -- to a more robust 9 to 10 percent reimbursement from typical commercial plans. This environment, according to Navigant, creates a disincentive for providers to favor lower-cost biosimilar products.

[Also: Educating doctors on drug prices, cost-effectiveness key to curbing drug costs]

Because the reimbursement under CMS is more favorable, biosimilars become more attractive as the percentage of Medicare patients increases. But the prohibitively high percentage of Medicare business required to make the biosimilar the more profitable, preferred choice is unrealistic. Physician offices and hospitals need to have more than 50 percent of their business coming from Medicare to realize a net margin improvement. The 340B hospitals, given their significant discounts off the innovator price, do not see a benefit by switching to a biosimilar until the percentage of Medicare business is more than than 75 percent.

According to Navigant's analysis, two reimbursement models could be viable options to overcome losses. The first is fixed reimbursement. With a fixed reimbursement model the payer "capitates" the cost of the drug by paying a fixed amount regardless of whether the innovator or biosimilar was administered, thereby eliminating the financial incentive for providers to use the more expensive innovator drugs. Under this model, providers realize the value of lowering their acquisition cost, while payers -- which reimburse less than they are currently paying for the innovator, and more than they are paying for the biosimilar -- reduce their drug spend.

Alternatively, payers could use an approach similar to CMS' and establish a differential reimbursement model with more favorable rates for biosimilars. About 3 percent of commercial payers currently report using differential reimbursement as a management tool to incentivize medical benefit product choice by providers.

Twitter: @JELagasse

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