Lower Provider Profits Slow Biosimilar Adoption

Treating patients with biosimilars of expensive biologic medications has the potential to reduce the costs of treatment for patients and payers, but the use of biosimilars has not translated into savings for most providers, which limits broader adoption of biosimilars, according to a recent analysis.
Jackie Syrop
July 12, 2017
Treating patients with biosimilars of expensive biologic medications has the potential to reduce the costs of treatment for patients and payers, but the use of biosimilars has not translated into savings for most providers, which limits broader adoption of biosimilars, according to a recent analysis by Navigant. 
The report, “Biosimilars: When Lower-Cost Medications Mean Lower Provider Profits,” by John Reddan, MBA, and colleagues, points out that the uptake of biosimilars in the United States has been modest, with reimbursement for providers being the critical factor limiting wider provider use of biosimilars. The payment discrepancy appears to be largely due to the so-called “buy-and-bill” reimbursement model for infusion therapies: under the buy-and-bill model, the physician purchases the drug, manages inventory, administers the drug, and submits claims for reimbursement for both the drug and accompanying professional services. 
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. Although the use of biosimilars is incentivized by CMS through differential reimbursement, private payers do not generally provide such incentives, the report points out. Thus, adoption of lower-cost biosimilars under today’s reimbursement model leads to an actual reduction in profits for most providers’ practices, the report notes.
Using the example of infliximab (Remicade), which was used to treat more than 130,000 Americans in 2016, the report demonstrates how broad adoption of an infliximab biosimilar could decrease profits by as much as $100 million across providers. “In this environment, private payers will need to meaningfully change their reimbursement scheme, or preferentially incentivize the use of biosimilars in order to spur adoption,” the report states. 
The authors demonstrate this point through a discussion of a hypothetical case of an infused innovator product that costs $1000 per unit dose versus a biosimilar product priced at a 15% discount. The report examines the dynamics across provider types to determine the impact of provider setting and payer mix on biosimilar adoption. In this scenario, adoption of the biosimilar could lead the average physician’s office to lose $9 in gross profit per dose. Outpatient hospitals could lose $43 per dose, and disproportionate share hospitals or hospitals that operate under the 340B Drug Discount Program could lose as much as $79 per dose. “Individual providers with 50 patients on therapy could stand to lose as much as $50,000 per year—a loss that would grow with multiple biosimilars coming to market,” according to the report’s authors.
The biosimilars that have launched in the United States are infused or injected, and are therefore reimbursed to providers as buy-and-bill therapeutics. Reimbursement typically ranges from a CMS-mandated 6% of the drug’s average sales price under Medicare coverage to a more robust 9% to 10% reimbursement from typical commercial plans. This arrangement creates a disincentive for providers to favor lower-cost biosimilar products, the authors state.
The report suggests that, following the lead of CMS, commercial payers could offer favorable and differential reimbursement of an additional 4% for physician practices, 8% for hospitals, and 16% for 340B hospitals as a way to neutralize profit loss for providers who adopt biosimilars. With this type of differential reimbursement, payers can minimize an important barrier to biosimilar usage and seek a middle ground where both payers and providers see cost savings and increased profits. 
Navigant concludes that, while US regulation that enables substitution and interchangeability of biosimilars may prove key to lower prices, increased competition, and market access for patients in the longer term, the near-term adoption of biosimilars is likely to be driven by the parties responsible for the drug spend. “Though it may be possible for insurers to influence biosimilar uptake through restrictive formularies and benefit design, getting providers on board will require longer-term commercial reimbursement models that align hospital and physician incentives with those of the payer.”

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