Biosimilar Usage Rate Payment Changes with the Inflation Reduction Act

Biosimilars are medicines that are highly similar to, but not exact copies of, biologic drugs. Biologics are medicines made from living sources, such as cells or bacteria, and they are used to treat various diseases, including cancer. Biosimilars offer a potential alternative to biologics, as they may have lower costs and similar safety and effectiveness ¹².

However, biosimilars face several challenges in the US market, such as regulatory hurdles, patent litigation, physician and patient acceptance, and reimbursement policies ³⁴. One of the key factors that affects the uptake of biosimilars is the payment rate under Medicare Part B, which covers most biologics and biosimilars used in oncology .

Medicare Part B pays for drugs based on their average sales price (ASP), which is calculated from the sales data reported by manufacturers. For biologics, the payment rate is ASP plus 6%, which includes a 4.3% sequestration cut. For biosimilars, the payment rate is the ASP of the biosimilar plus 6% of the ASP of the reference biologic, which is the original biologic that the biosimilar is compared to .

This payment policy has been criticized for creating a disincentive for biosimilar use, as it reduces the price difference between biosimilars and biologics and lowers the profit margin for providers who administer the drugs  . For example, if the ASP of a biologic is $100 and the ASP of a biosimilar is $80, the payment rate for the biologic would be $101.40 ($100 + 6% of $100 - 4.3%) and the payment rate for the biosimilar would be $84.40 ($80 + 6% of $100 - 4.3%). The biosimilar would save Medicare $17 per dose, but the provider would only earn $4.40 from the biosimilar, compared to $5.40 from the biologic .

To address this issue, the Inflation Reduction Act (IRA) of 2022 included a provision that establishes a new payment rate for biosimilars under Medicare Part B. The provision sets the payment rate at ASP of the biosimilar plus 8%, without applying the sequestration cut. This policy took effect on October 1, 2022 and will last for five years ¹².

The new payment policy aims to increase the incentive for biosimilar use by increasing the price difference between biosimilars and biologics and raising the profit margin for providers. Using the same example as above, the payment rate for the biologic would remain at $101.40, but the payment rate for the biosimilar would increase to $86.40 ($80 + 8% of $80). The biosimilar would still save Medicare $15 per dose, but the provider would earn $6.40 from the biosimilar, which is more than the $5.40 from the biologic .

The new payment policy also applies a condition for biosimilars to qualify for the higher payment rate. The biosimilar must have an ASP that is lower than the ASP of the reference biologic. This condition is intended to prevent biosimilar manufacturers from raising their prices to match or exceed the prices of biologics, which would negate the cost-saving benefits of biosimilars ¹².

The new payment policy is expected to have a positive impact on the economics of biosimilar use in oncology, as it could increase the competition, access, and affordability of biosimilar drugs. According to a report by the Congressional Budget Office (CBO), the new payment policy could save Medicare $3.8 billion and beneficiaries $0.9 billion over 10 years, as more providers and patients would switch to biosimilars .

The new payment policy could also stimulate the development and approval of more biosimilars, especially in high-cost therapeutic areas such as oncology. According to the FDA, there are currently 31 biosimilars approved in the US, of which 15 are used in cancer treatment or supportive care . However, there are still many biologics that do not have biosimilar competitors, such as cetuximab (Erbitux), ipilimumab (Yervoy), nivolumab (Opdivo), and pembrolizumab (Keytruda) . The new payment policy could encourage more biosimilar manufacturers to enter the market and challenge the monopoly of biologics .

The new payment policy is not without its limitations and uncertainties, however. Some of the challenges and questions that remain include:

- How will the new payment policy affect the private insurance market, which covers a large portion of oncology patients? Will private insurers adopt similar payment policies or continue to use different methods, such as rebates, discounts, and formularies, to influence biosimilar use?

- How will the new payment policy affect the patient out-of-pocket costs, which are based on a percentage of the Medicare payment rate? Will patients pay less or more for biosimilars under the new policy? How will this affect their adherence and satisfaction?

- How will the new payment policy affect the physician and patient preferences, which are influenced by factors such as clinical evidence, experience, education, and trust? Will physicians and patients be more willing to use biosimilars or remain loyal to biologics? How will this affect the quality and outcomes of care?

- How will the new payment policy affect the innovation and investment in biologics and biosimilars? Will biologic manufacturers reduce their research and development efforts or increase their prices to compensate for the loss of market share? Will biosimilar manufacturers increase their research and development efforts or lower their prices to gain more market share? How will this affect the availability and diversity of treatment options?

These are some of the questions that need to be answered as the new payment policy unfolds. The policy is a significant step towards promoting biosimilar use in oncology, but it is not the only factor that matters. Other policies and initiatives, such as regulatory guidance, patent resolution, education, and awareness, are also needed to create a robust and sustainable biosimilar market in the US .

(1) List of Biosimilars Used in Cancer Treatment. https://www.cancer.org/cancer/managing-cancer/treatment-types/biosimilar-drugs/list.html.

(2) What Are Biosimilar Drugs? - American Cancer Society. https://www.cancer.org/cancer/managing-cancer/treatment-types/biosimilar-drugs/what-are-biosimilars.html.

(3) Patients Increasingly Rely on Oncology Biosimilar Medicines. https://biosimilarscouncil.org/resource/patients-increasingly-rely-on-oncology-biosimilar-medicines/.

(4) What Are Biosimilars in Cancer Treatment? | Cancer.Net. https://www.cancer.net/blog/2020-09/what-are-biosimilars-cancer-treatment.