Originator Biologics and Biosimilars: Payment Policy Solutions to Increase Price Competition While Maintaining Market Sustainability in Medicare Part B

Modified on November 17, 2021

Issue: Biosimilars present a unique opportunity to decrease drug spending while maintaining parity of clinical outcomes. However, providers generally have limited financial incentives under Medicare Part B’s existing policies to use less costly biologics when biosimilars are available, reducing competitive pressures from biosimilars. Payment reforms are needed to increase price competition between originators and biosimilars, resulting in lower costs for beneficiaries and the Medicare program.

Potential policy reforms include consolidated billing codes with shared reimbursement rates and least costly alternative (LCA) payment policies. In a fully consolidated billing code system, both innovator biologics and their biosimilars would be reimbursed at the same 106% “blended” average sales price (ASP) rate, which is the volume-weighted average of the ASPs of all products of the same molecule (originator and biosimilar[s]). In an LCA or reference price system, the payment rate for every product within that group is set at the payment level of the lowest-cost alternative. Such payment reforms could spur head-to-head price competition between biologics and their clinically similar, lower-priced biosimilars. However, concerns have been raised that such reforms could compromise access and beneficiary quality of care.

Key Findings and Recommendations: To promote more price competition while minimizing concerns that these policies might result in adverse effects that would negate the potential cost savings of increased biosimilar utilization and could lead to worse patient outcomes, we propose a stepwise approach to biosimilar payment reform that permits assessment and adjustment of the proposed shift from the current product-specific reimbursement approach toward a shared payment amount for the originator and its biosimilars. The shared blended payment rate would be phased in, allowing an assessment of the consequences for price competition, access, and beneficiary spending. The initial payment rate for a biologic or biosimilar product could be partly (e.g., two-thirds) based on a product’s own ASP and partly (remaining one-third) blended with the ASPs of the other products in that group, culminating in a fully blended reimbursement rate over time. This approach could result in significant savings while mitigating extreme adjustments in price and provide an opportunity to assess the consequences of the policy change, while giving providers an opportunity and motivation to develop practices that optimize the use of biosimilars.

To implement the novel payment policy as described in this brief, legislative action is needed to give CMS authority to modify reimbursement methodologies away from individual products’ ASPs for originator biologics. Alternatively, CMMI could use its authority to test and refine such a model in order to reduce Part B drug spending while improving beneficiary access and affordability of biosimilars.

Policymakers could also consider other approaches that extend beyond these proposed changes to encourage the use of biosimilars to improve access and lower costs. CMS could depart from the existing “buy-and-bill” payment system in favor of market-based reforms such as competitive bidding, using contractors like those in Medicare Part D to negotiate lower prices and benefit designs to provide lower copays and encourage uptake of less costly but effective biologics, especially when biosimilars or multiple therapeutic options are available for a condition. Lastly, increasing the uptake of value-based care models that include accountability for drug costs and outcomes can reward prescribers with more successful financial outcomes when they increase biosimilar utilization and offer another effective way to lower Part B spending on biologics and other costs of care.