Surya Singh, MD, president and owner of Singh Healthcare Advisors LLC in Lexington, Massachusetts, discussed how payers’ decisions regarding formulary lists affect patient out-of-pocket costs and access to biosimilars.
The Center for Biosimilars® (CfB): Hello, I'm Matthew Gavidia. Today on MJH Life Sciences' Medical World News, The Center for Biosimilars® is pleased to welcome Surya Singh, MD, president and owner of Singh Healthcare Advisors LLC, based in Lexington, Massachusetts. Could you just introduce yourself and tell us a little bit about your work?
Singh: I'm a physician by trade and I now run an independent consultancy where I provide advisory services to a variety of different stakeholders in health care. My background, prior to this consultancy, is more on the managed care side. I spent 7 years as the chief medical officer of specialty pharmacy at CVS and several years before that [I worked] in small companies that provided informatics services and products for payers.
CfB: What are the conflicts between a payer's desire to obtain the lowest cost drug for plan participants and the desire to strike a profitable deal with manufacturers and developers?
Singh: I think in response to that question about motivations, payers' desires are largely based on their motivation to have the ability to service their memberships and the economic incentives that they have. And I think a lot of people sort of see it as an inherent conflict that gets brought up when trying to get to the lowest net cost for the medications that they cover, as well as the lowest out-of-pocket costs for the plan participant. And then [they have to consider] what is a profitable deal? So, I guess there are really 3 things to consider.
Just to take one at a time, [the greatest conflict right now is the actual lowest net cost vs the lowest out-of-pocket cost] drug or product for the individual patient or member, depending on your perspective. Those aren't always the same thing, and that's all because of the size of the rebates and what a lot of people call the "gross-to-net bubble," where the gross price of the medication is diverging even further from the net price of the medication. The size of the rebate is really big.
I think the old way of the economics working was that the rebate did tie to a higher margin for essentially the managed care organization that was negotiating the deal. That's really no longer true in most cases. In most cases, the managed care entity has the most economic incentive to get to the lowest net cost. Unfortunately, what happens is that the size of that rebate that is being passed through—expecially in ASO [administrative services only] businesses with employer-sponsored commercial plans—the size of that rebate actually covers lots of other programs.
But just going back to those 3 considerations, the conflict that exists, which I point out a lot to people, is really between what the lowest-net-cost agent is and what provides the lowest out-of-pocket expense for the patient.
CfB: How are these decisions affecting the end users, such as patients and providers, when it comes to costs and access to biosimilars?
Singh: Okay, let me take those one at a time. Each stakeholder group—and I think just in the spirit of building on my response to the last question with patients—we really can't kind of think about access to medication that has the least amount of barriers, including economic barriers—the patient being able to take it—and the decisions that are being made based on what I outlined before with these 2 economic considerations: What's the lowest net cost agent in the class and what provides the lowest out-of-pocket expense for the patient are not always the same thing.
And so, for patients, it becomes common for what ultimately is the lowest-cost agent in some drug classes to result in higher out-of-pocket expense because of a large rebate. In turn, that means that with a higher out-of-pocket expense, patients are more likely to not be able to afford [their drugs] at all or they can't get enrolled in an appropriate patient assistance program that can help them with out-of-pocket expenses, especially in a higher-tier coinsurance situation. Therefore, we have lower overall adherence and persistence.
So, I think on the patient side, that's what we worry about, at least. That answers one part of the question. I can elaborate on that, but just in the interest of covering the providers, too, for them I think it means that, in terms of access to biosimilars, biosimilars are not always the preferred agent even though they might have the lowest net cost. And that that has a lot of people up in arms about biosimilar adoption. But from the perspective of trying to keep patient out-of-pocket expenses as low as possible, there are other considerations to take into account.
Then, the last thing I'll say is that what can be frustrating for providers, as an end user group. The amount of the rebate that's passed through, which I referenced before, can be used to offset either the premium or other clinical programs and other things by the plan sponsor, and it's especially notable when the plan sponsor is an employer.
CfB: What's happening to the potential savings from the introduction of a biosimilar at, say, a 15% discount? Is this savings going to the payer? Is it evaporating in the deal-making or is it trickling down to the provider and the patient?
Singh: The 15% discount….First, just in terms of definition, I'm just going to outline what I interpret as the intent of that question. I think the intent is that if a biosimilar launches at a 15% discount to the reference brand, and let's say that discount is in terms of WAC (wholesale acquisition cost), now that 15% discount may be passed to the plan sponsor. If that biosimilar ends up being the preferred agent on the formulary, because of the lowest net cost, those savings do go to the risk-bearing entity of the plan, the ultimate plan sponsor.
Are discounts evaporating in the deal-making is the second question. No, I wouldn't say that.the savings goes away is, in my mind, anything that I can imagine occurring. The savings don't evaporate. What's happening is that sometimes those savings aren't being taken advantage of, because the reference brand decides if they're going to offset some of that new 15% decrement in the form of a larger rebate in order to maintain their share. And the larger rebate, because the plan sponsor says that at a 10% greater rebate with no disruption, meaning people stay on exactly what they were on, that's ultimately a better decision for them.
And so, again, there's some inconsistency in whether the biosimilar that's offered at the absolute lowest net cost is getting selected as the preferred agent or whether a better deal is being offered by the reference brand so that the preferred drug [continues to be their product].
To watch part 2 of this interview, click here.