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An “unintended consequence” of the Affordable Care Act may mean that Medicare Part D beneficiaries will pay more for biosimilars than for costlier brand-name biologics, according to a new analysis released last week.

The reason is that the law requires drug makers to provide 50 percent discounts for brand-name biologics when beneficiaries reach the so-called donut hole, or coverage gap in which there is a temporary limit on what Medicare Part D will pay for drugs. However, the law does not require companies to provide discounts for biosimilars, which are lower-cost and nearly identical versions.

Using a hypothetical example in which a brand-name biologic costs $30,000 a year, a Part D beneficiary would pay more than $1,500 — or 39 percent more — for a biosimilar. Such higher expenses are likely to discourage use of biosimilars in the Part D program and, as a result, lower savings for Medicare overall, according to Avalere Health, a consulting firm that ran the analysis.


The findings emerge amid widespread anticipation that biosimilars will save money.

The medicines are expected to cost 10 percent to 30 percent, in general, less than brand-name biologics and, consequently, lower the US health care bill by $44 billion over the next several years, according to a 2014 reported from the RAND Corporation.


“Lawmakers inadvertently created this scenario,” said Caroline Pearson, an Avalere vice president. “At the time the law was being crafted, there were no biosimilars on the market, and I think they were trying to avoid burdening manufacturers with additional costs … But now, the projected savings may not be as large as we thought, at least if the policy isn’t corrected.”

To what extent enthusiasm for biosimilars might wane is unclear.

To date, the US Food and Drug Administration has approved just two biosimilars. Last year, the agency endorsed Zarxio, which is sold by Sandoz, for boosting white blood cell counts in chemotherapy patients. Earlier this month, the FDA approved a version of Johnson & Johnson’s Remicade for treating rheumatoid arthritis and other ailments. It will be marketed by Pfizer and Celltrion.

Although the donut hole will be phased out by 2020, many more biosimilars are expected in the meantime. Last year, companies submitted marketing applications for seven more, according to the IMS Institute for Healthcare Informatics. And while demand will depend on a specific medicine, Pearson noted that Medicare generally accounts for a large portion of the market for many drugs.

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The problem could be solved if drug makers are required to offer the same discounts for the donut hole on biosimilars, as well. Avalere estimates this would reduce federal spending by $800 million over a decade, although this would obviously increase costs for drug makers.

Alternatively, Medicare could create a new tier, or level that determines the portion of drug costs paid by beneficiaries. This might reduce Medicare beneficiary costs for biosimilars below what they would pay for brand-name biologics, although federal spending would rise by $300 million over 10 years.

The landscape is complicated, though, because some brand-name drug makers, such as Pfizer and Merck, are also developing biosimilars.

“You’ve got companies on both sides of the issue,” said Pearson. “We’ve heard from some biosimilars manufacturers that they wanted to voluntarily close the coverage gap, but they can’t do so because that would be considered a violation of the antikickback law … But it’s hard to imagine this it won’t get fixed (by Congress), given this has set up backwards incentive in the Medicare program.”

A spokeswoman for the Biosimilars Forum, an industry trade group, wrote us that it “continues to be concerned about the impact of the CMS Part D policy on patient access to biosimilars that can bring cost-savings to the market. The Avalere report highlights this concern and illustrates the continued need for the reimbursement framework developed by CMS to support appropriate patient access to biosimilars.”

We should note that the Pearson also explained that the Avalere analysis was limited to the Medicare Part D program, because that is the only place that has higher consumer costs for biosimilars. Under Medicare Part B, some injectable or infused drugs are administered by physicians.

In terms of cost, most Part B beneficiaries have supplemental coverage that reduces or eliminates any cost-sharing, Pearson noted. For those who do not, they pay 20 percent of the cost of the drug, which means patient costs are lower if the biosimilar is priced lower than the brand-name biologic.

This post was updated to include a comment from the Biosimilars Forum.