CMS Proposes Policy to Lower the Cost of Biosimilars

On Thursday, November 16, 2017, CMS announced its proposed rule Medicare Program: CY 2019 Policy and Technical Changes to the Medicare Advantage, Medicare Cost Plan, Medicare Fee-for-Service, the Medicare Prescription Drug Benefit Programs, and the PACE Program (CMS-4182-P). CMS is proposing a change to lower cost-sharing and improve enrollee incentives to choose biosimilars over reference biologics, and to reduce costs to both Medicare Part D enrollees and the Part D program. This objective would be accomplished by revising the definition of generic drug (§ 423.4) to include follow-on biologic products approved under the section 351(k) biosimilar pathway. This change would impact Low Income Subsidy (LIS) cost-sharing and non-LIS catastrophic cost-sharing, and would not be universally applied across all CMS policy.

Low Income Subsidy Cost Sharing

Currently, LIS enrollees, who have limited income and therefore receive assistance in paying for their Part D premium and drug costs, pay the same cost for biosimilars and competing biologics. A summary of the maximum LIS beneficiary’s cost sharing follows:

Institutionalized dual-eligible or receiving home- and community-based services:

• Co-payment up to out-of-pocket threshold: $0
• Co-payment above out-of-pocket threshold: $0

Dual eligible, below or at 100% of the Federal Poverty Limit (FPL):

• Co-payment up to out-of-pocket threshold: $1.20 generic, $3.70 brand (biologic and biosimilar)
• Co-payment above out-of-pocket threshold: $0

Dual eligible, above 100% FPL or Medicare-only below 135% FPL:

• Co-payment up to out-of-pocket threshold: $3.30 generic, $8.25 brand (biologic and biosimilar)
• Co-payment above out-of-pocket threshold: $0

Medicare-only, between 135% and 150% FPL

• Co-payment up to out-of-pocket threshold: 15%
• Co-payment above out-of-pocket threshold: $3.30 generic, $8.25 brand (biologic and biosimilar)

In the future, these individuals, who account for nearly 3 of every 10 Part D enrollees, would pay lower cost-sharing for biosimilars relative to biologics because biosimilars would be included in the definition of generic drug.

Non-LIS Catastrophic Cost Sharing

In 2017, non-LIS cost-sharing for biosimilars and competing biologics under catastrophic coverage is the same (at 5%, or a $8.25 minimum cost share, while cost-sharing for generic drugs is 5%, or a $3.30 minimum cost share). As a result of this proposed rule, beginning in 2019, individuals utilizing biosimilars who have reached the catastrophic coverage stage would pay the same cost share and minimum as they would for generic drugs.

For example, in 2017, under non-LIS catastrophic cost-sharing, a biologic costing $3500 would result in a patient cost of $175 (5%, $8.25 minimum), a biosimilar costing $2450 would result in a patient cost of $122.50 (5%, $8.25 minimum), and a generic costing $50 would result in a patient cost of $3.25 (5%, $3.25 minimum).

Under the proposed rule, beginning in 2019, a biologic costing $3500 would result in a patient cost of $175 (5%, $8.25 minimum; note that the minimum amount charged changes every year as determined by CMS, so the $8.25 amount will likely be higher), a biosimilar costing $2450 would result in the same patient cost of $122.50, despite the change in the proposed rule (5%, $3.25 minimum; note that this minimum also changes every year as determined by CMS and will also likely be higher), and a generic costing $50 would result in a patient cost of $3.25 (5%, $3.25; again, this minimum is subject to change and will likely increase.)

Final Thoughts

The CMS proposal to lower Medicare Part D LIS enrollee cost-sharing for biosimilars will help improve these individuals’ access to biosimilar products in the future. However, the change to non-LIS catastrophic cost-sharing will not have an impact on access, as patients will continue to pay the same 5% cost share for a biosimilar because the costs of these products are above the level at which the minimum cost share would apply. The proposal will result in reduced costs for both the Medicare Part D program and enrollees; the CMS Office of Actuary (OACT) estimates a savings of $60 million from 2019 to 2023. Lastly, the proposal will help encourage manufacturers to develop more competing biosimilars that could further increase access and savings.

An outstanding item that is understandably missing from this proposal is a change to non-LIS cost-sharing for biosimilars in the coverage gap. Currently, biosimilars are more costly than competing biologics in the coverage gap for most Medicare enrollees because biosimilars are exempt from the 50% discount that manufacturers are required to provide on brand-name products. CMS does not have the authority to change this exemption; therefore, new legislation would be necessary to change the Social Security Act 1860D-14A(g)(2)(A) by including biosimilars in the definition of “applicable drug” for purposes of the Medicare Coverage Gap Discount Program.