CMS Biosimilar Reimbursement Shift: What You Need to Know

The world of biosimilars is constantly evolving, with many developments occurring in just the past few weeks. On November 2, 2017, CMS announced a significant decision to change the existing policy on biosimilar reimbursement under Medicare Part B. As part of the final CY2018 Medicare Physician Fee Schedule (PFS) policy, biosimilars will each have unique Healthcare Common Procedure Coding System (HCPCS) codes and payments under Medicare Part B, starting January 1, 2018.

What Changed?

The existing policy for biosimilar reimbursement under Medicare Part B has been in effect since January 2016. It is structured so that all biosimilars for the same reference biologic share a common HCPCS code, separate from the reference or brand biologic. With a second infliximab biosimilar entering the market only recently, we have yet to see the extent of impact of the current model.

The current law requires drug manufacturers to report the average price at which drugs and biologics (including biosimilars) are sold in the market. This average price (weighted by volume) is known as the average sales price (ASP). Medicare pays all drugs other than biosimilars at the product’s own ASP plus 6%. For a biosimilar, Medicare pays at the product’s own ASP plus 6% of the reference biologic’s ASP. The reference biologic is generally sold at a higher price than the biosimilar, so the policy is intended to provide a higher payment for the biosimilar as an incentive for the market to grow. Prior to ASPs becoming available, Medicare pays the Wholesale Acquisition Cost (WAC) plus 6% for the particular biosimilar product. WAC is a price set by the manufacturer, not the price that is paid in the market.

To put it into context, as it stands today, when the first biosimilar for a reference biologic (such as Inflectra) enters the market, it is reimbursed at 106% of the WAC until ASP information is available. Once ASP is established, reimbursement becomes ASP plus 6 percent of the reference biologic’s ASP. However, when additional biosimilars (such as Renflexis) enter the market for the same reference biologic, they enter directly into the current payment rate for the specific HCPCS code (and forego the WAC). The ASP for biosimilars within a shared HCPCS code is based on all of the biosimilar products represented by the code.

Under the revised policy, all biosimilars (regardless of reference biologic), will have separate, independent HCPCS codes and will therefore rely on their individual ASPs for reimbursement. As such, when a new biosimilar first enters the market, each product would experience the initial WAC period until ASP is established. Thus, once ASP is established, each biosimilar will be reimbursed at its own ASP plus 6% of the reference biologic’s ASP.

Why Did It Change?

In the CY2018 PFS proposed rule, CMS requested comments on the biosimilar payment policy to gain insight into the policy’s impact based on US market experience. With significant feedback from diverse stakeholders raising concerns with the model, the decision was made to reverse the policy and provide each biosimilar with its own code, rather than to provide all biosimilars of the same reference biologic a shared code. In the final rule, CMS stated that it believes the policy change will “result in the licensing of more biosimilar products, thus creating a stable and robust market, driving competition and decreasing uncertainty about access and payment.”

What Does It Mean for Health System Providers?

Because there have been limited opportunities and few biosimilars on the market to truly understand the impact of shared reimbursement codes, it is largely unknown how the decision to reverse this policy will particularly affect providers.

One possibility is potential administrative changes in terms of billing for the products. Currently, CMS issues and assigns modifiers to specific biosimilar products within each HCPCS code to identify and distinguish manufacturers. The modifiers provide CMS the ability to track claims payments and understand the use of specific products under Medicare Part B. Therefore, providers must have processes in place to ensure accurate billing and include the specific biosimilar modifiers on claims. When the policy changes to using separate HCPCS code for each biosimilar, the modifiers will no longer be the sole source of product/manufacturer differentiation in claims, and may be less impactful in the billing process. CMS is planning to issue more detailed guidance on the changes concerning coding and how current biosimilars with shared reimbursement codes (ie, Inflectra and Renflexis) will be addressed moving forward.

Nonetheless, the real impact of the Medicare Part B payment policy for biosimilars on the overall US market is yet to be determined. What is certain is that it is important to monitor biosimilar activity and market trends in order to effectively evaluate and assess the impact of CMS’ policy revisions.