The Value Mirage: Will Allowing Health Insurers to Sell Across State Lines Mean Lower Premiums?

If an annual premium for a silver-level health insurance premium is $3,000 (in 2016) in Minnesota, wouldn’t it be appealing to offer that same plan and coverage to those people paying $5,400 in New York City? This is the concept behind a key component of the Trump Administration’s current replacement (or “fix”) for ObamaCare.

This post will not cite the myriad complex problems associated with this idea. We’ll describe just one—the one that will render the concept almost of no value.

That plan in Minnesota contracts with local providers (physicians and hospitals) for a certain level of payment. Generally, it is what the market will bear in, say, St. Paul, Minnesota versus what the market will bear in White Plains, New York. Historically, health costs and premiums have always been lower in metropolitan Minnesota than in southeastern New York State. Hospitals charge less for hip replacements, doctors are reimbursed less for office visits, and yes, health plans in Minnesota may even be a bit better at leveraging the market, because of their market penetration. If you transport that Minnesota plan to Westchester County, New York, you leave its advantages behind. Gopher Health Plan will have to build a brand new provider network in one of New York’s most expensive counties. Unless it also transports Minnesota providers to New York, it will pay New York prices. It is conceivable that the greater competition for providers may actually push reimbursements up—a new plan entering a market has to entice physicians to sign with their plan (regardless of a narrow or broad network). What does that mean for physicians or hospitals? They are in the driver’s seat, and have a bit more leverage with which to negotiate rates. Remember, that rate negotiation will not start at St. Paul levels. It will begin at New York metro area figures. This could have an inflationary effect.

The basic idea of bringing more competition into high-cost markets is a good one. If 2 or 3 well-run out-of-state insurers were to begin to operate in many such areas, the additional competition should have a beneficial effect on rates. But so would encouraging the birth and growth of organically grown local plans and insurers that were given the financing and resources needed to be successful.

In other words, if you see the shimmering image of a Minnesota health insurer offering great value to New York residents, it is likely a mirage in the hot, dry health reform air. And finally, this mirage evaporates quickly, as Minnesota granted average premium increases of over 50% to exchange plans for 2017, resulting in annual premiums that are closing in on $5,000. 

The Pitfalls of Pinning Savings on Biosimilars

By Stanton R. Mehr

With the recent capitulation by the Centers for Medicare and Medicaid (CMS) that its part B pilot on value-based purchasing was not going to be implemented, another organization has proposed 2 other avenues to value-based purchasing, which it thinks will encourage biosimilar use and save the part B program billions.

The Pew Charitable Trusts acknowledge the core problem, that payment of average sales price (ASP) plus 4.3% encourages use of the higher priced drug. To address this, Pew offers a consolidated rate plan or a least costly alternative (LCA) plan. They demonstrated the savings that could accrue with either by utilizing an economic model based on the introduction of 5 major biosimilars (1 already approved [infliximab], 3 filed for approval [bevacizumab, pegfilgrastim, and trastuzumab], and 1 not yet under review [rituximab]). Under the model’s assumptions (a few of which are questionable), either approach would cut costs dramatically with just these 5 biosimilars.

Under a consolidated payment rate, CMS reimbursements would be based on a volume-weighted ASP of all reference and biosimilar prescribing, similar to what is used in the conventional brand–generic arena. Pew suggests that “Part B drug spending could be reduced if providers responded by increasing their use of biosimilars over reference biologics (or increasing the use of the reference product if it were available at lower cost… A consolidated payment approach, which would effectively decrease Medicare payment for higher-cost reference biologics and increase payment for lower-cost biosimilars, would create a financial incentive for providers to switch to the latter.”

The second approach is the least-costly alternative, where the payment rate for a higher-cost therapy is set at the payment of a lower-cost, therapeutically comparable alternative—a form of maximum allowable cost (MAC) used in the generic marketplace.

Either approach would depend on the substitutability of a biosimilar for a biologic, as well as an acknowledgement that if the part B payment is lower than the providers’ purchase cost, they will avoid treating part B patients who need these agents and send them to potentially more expensive treatment settings.

Based on these two alternative payment policies, the Pew Charitable Trusts believes that the part B program can save, based on 2014 Medicare expenditures for the 5 reference products, $4.32 billion (or a 21% savings) with the consolidated payment approach and $3.56 billion (or a 35% savings) with the LCA.

These savings figures are unlikely, however, because the devil is in the details, once again. A few key assumptions are important to note:

These 5 biologics are assumed to have lost exclusivity and patent protection, and to have begun facing competition from biosimilars. The time horizon may be problematic here, as clearing the patent litigation is taking far longer than expected, meaning that launches are experiencing unanticipated delays, unless the manufacturer decides to launch “at risk.”

The price of each reference biologic remains constant at the average of its 2014 payment rate. Reference biologic and biosimilar ASPs do not change during the year. Unfortunately, we know this is not the case, as several biologics facing the possibility of biosimilar competition have been subject to alarming price increases, often twice a year, which affect the ASPs.

Biosimilar prices are 35% lower than those of reference biologics. The authors of the analysis based their assumption on pricing differentials found in Europe. So far, the pricing differential of 15% for the 2 launched biosimilars would result in minimal savings, according to the Pew Charitable Trusts’ sensitivity analysis. A 35% decrease may not be evident until competition intensifies, with more than 1 biosimilar available for the reference product.

Under the current payment policy, use of biosimilars is 50% of the total biologic utilization. This assumption is also based on the uptake in Europe, and will not likely be seen in the US without steep price discounts.

Biosimilar prices and uptake are not affected by the number of biosimilars available. The launch of multiple biosimilars for the same reference biologic does not create any additional effect on prices or utilization. This would seem to violate a basic precept of competition in this area, but it could mean that model savings are understated. We’ll have to wait and see how far prices are driven down by additional competition.

The concept of a value-based payment model, which would help encourage use of the lower priced, effective product, is laudable, but savings calculated based on economic modeling (here and for other estimates of biosimilar adoption) have been overly optimistic. Perhaps the numbers pan out over the long term, but today, they may not present a strong enough case to influence CMS or legislative action. 

SM Health Communications provides writing, consulting, and market research services for the payer, pharmaceutical, and health care markets. For information on its payer access consulting services and its proprietary P&T Insight™,  please visit www.smhealthcom.com or contact Stanton R. Mehr, President, at stan.mehr@smhealthcom.com.

Are 2 Biosimilars to the Same Originator Product Biosimilar to Each Other?

In Europe, several manufacturers are marketing approved biosimilars to the same originator product. In fact, 7 manufacturers compete for the biosimilar filgrastim market, 5 biosimilar versions of epoetin are sold, and 3 biosimilars of infliximab seek marketshare from Remicade^®. In the US, this situation is not a reality yet. It will be one day, however, and it raises a couple of important questions.

We know that the biosimilars are not exactly the same structurally as the originator products, but how similar may they be to each other? In other words, at some point, payers will prefer one biosimilar version of filgrastim over another one, as some do currently with Zarxio^® versus Neupogen^®. We can assume that with 3 filgrastim biosimilars sold in the US, payers will seek to leverage 1 against the others and make it their preferred or only available form of filgrastim available. However, is another manufacturer’s version of filgrastim biosimilar to Zarxio? We can also assume that the new manufacturer’s product has received US Food and Drug Administration approval through testing for comparability only with the originator product—not against Zarxio. How about compared with Teva’s product tbo-filgrastim (a follow-on biologic, not a biosimilar according to the regulatory and statutory rules)?

What does this mean for switching products, much less interchangeability? Is one biosimilar interchangeable with another? Based on what we know about the FDA, the answer is likely no, as the agency seems to be having difficulty devising interchangeability guidelines for a biosimilar and its originator product.

Why is this important? Consider the patient with Crohn’s disease in 2019 who changes health plans. The patient was receiving biosimilar A, and the new plan covers only biosimilar B. Maybe he or she needs to enroll in a new plan in 2020, and the reverse is true. Regardless of whether we like it, that patient may be unintentionally providing real-world evidence of interchangeability. 

SM Health Communications provides writing, consulting, and market research services for the long-term care and payer markets. Its proprietary P&T Insight™ virtual P&T Committee program is the leading mock P&T Committee product in the field. For more information, please visit www.smhealthcom.com or contact Stanton R. Mehr, President, at stan.mehr@smhealthcom.com.

How Economic Value Became Part of the P&T Committee Considerations Today

Stanton R. Mehr, President, SM Health Communications LLC

www.smhealthcom.com
stan.mehr@smhealthcom.com

Years ago, the undeclared rule of law was that a Pharmacy and Therapeutics (P&T) Committee’s deliberations must be free of cost concerns. This rule is increasingly being overturned.

The P&T Committee, as a formulary decision-making body, was supposed to decide a new agent’s fate based only on the clinical evidence for efficacy and safety. According to the standard protocol, once the P&T Committee’s decided to add a product to formulary, it was then the pharmacy contracting executives’ responsibility to simply get it for the best price available. This created a handy shield to prevent public complaint that a health plan or insurer was really making decisions based treatment cost.

The preeminence of 2 trends has caused payers to rethink this firewall. First, over the course of 25 years, multitiered copayment designs have become the standard. The very idea of a 3-tier plan, for instance, is to prefer products that medical and pharmacy executives believe patients should be incentivized to use, based on some facet of value. In practical terms, if tier 1 is for generics only, what is the difference between tier 2 (preferred brands) and tier 3 (nonpreferred brands)? The clinical difference between a preferred drug and, say, “me-too” agents on tier 3 is often insignificant. Most often, it comes down to which offers the best net price. Medicaid and exchange plans seem to be reverting to 2 tier plans (generic and covered brands), but these, too, are based on perceived value.

The second trend is the movement towards value-based benefit design (VBBD). At its simplified core, VBBD tries to determine whether certain drugs have more value (in terms of proof of clinical effectiveness, safety, or cost) compared with others. As a result, formulary decision makers are increasingly seeking comparative-effectiveness information or head-to-head study results to help determine the value of a new treatments. This information is added to P&T Committee discussions (sometimes included, if available, in drug information monographs). The result of which is a determination of whether prior authorization or step edits may be warranted to access the drug and what those criteria might be. P&T Committee members will have a hand in those decisions as well.

It only then makes sense to integrate the discussion of a drug’s cost into that of its clinical merits at the P&T Committee level, rather than to keep the greater value picture separate from formulary decisions.

The double-digit growth of specialty pharmacy spending has injected new urgency into the conversation about value for payers. The P&T Committee is (still) the arbiter of value for the pharmacy benefit and for specialty pharmaceuticals. That is why at least two-thirds of P&T Committees are now fully invested in cost considerations. The old firewall has been breached.

SM Health Communications provides writing, consulting, and market research services for the long-term care and payer markets. Its proprietary P&T Insight™ virtual P&T Committee program is the leading mock P&T Committee product in the field. For more information, please visit www.smhealthcom.com or contact Stanton R. Mehr, President, at stan.mehr@smhealthcom.com.

Medicare Advisory Commission Calls for Major Medicare Changes, More Risk for Plans

Major changes may be in the works for Medicare Part D, should the recommendations of the nonpartisan Medicare Payment Advisory Commission (MedPAC) be accepted.

A report from MedPAC released on June 15th, recommended that, to sustain fiscal sustainability of the Part D Program, beneficiary, insurer, and Medicare shares of the payment should be restructured. One of the main objectives seems to be shielding the beneficiary from extremely high cost sharing over time: Today, even after they exceed the catastrophic cost threshold of the coverage gap or “donut hole,” they are liable for 5% of drug costs. For some specialty medications, this could be well over $5,000 beyond what they had already spent on the deductible ($360) and 25% cost sharing (up to $3,310) and the coverage gap ($4,850 cumulatively). MedPAC recommends capping a Medicare recipient’s cost sharing for Part D drugs at about $4,850. They estimate that some seniors will be on the hook for more than $1,000 above what they presently pay if they reach the coverage gap, because of restructured cost sharing within the donut hole. Patients with low-income subsidies would pay less.

According to the report, “Medicare’s overall subsidy of basic Part D benefits would remain unchanged at 74.5%, but plan sponsors would receive more of that subsidy through capitated payments rather than open-ended reinsurance payments.” To compensate for the average reduced beneficiary contribution, MedPAC proposes that insurers pick up the slack—currently,  Medicare pays for 80% of catastrophic coverage; MedPAC wants to gradually scale that back to only 20%, with insurers covering the remainder. 

This means that insurers will be at greater risk, and their costs will rise, with 3 principal implications: (1) much tougher negotiations with pharmaceutical companies on high-priced medications, (2) higher member premiums, and (3) tighter formulary restrictions (more drug exclusions and greater utilization of utilization management tools). Of note, MedPAC recommends that health plans have more flexibility in using standard utilization management tools to control drug costs.

Furthermore, MedPAC offers greater incentives (i.e., lower cost sharing) for recipients who use generic drugs. This may be applicable to future Part D–covered biosimilars as well.

Although the move is not aimed at saving short-term money, MedPAC believes that its recommendations could save the program as much as $10 billion over 5 years. They noted that spending for Medicare Part D jumped by 60% over an 8-year period ending in 2014 ($73 billion). This is largely the result of the rapid influx of specialty drugs (e.g., hepatitis C agents) and price increases in generic and branded drugs in many categories.

The Commission’s recommendations stop well short of the calls from the Presidential candidates for Medicare to negotiate drug prices directly with manufacturers. 

To better understand the implications of these possible changes to the Medicare payer market, contact us today at stan.mehr@smhealthcom.com. 

Do We Need the Interchangeable Designation for Biosimilars?

I think the question of whether a biosimilar is “interchangeable” to a reference or innovator product can be answered with a mixture of science and faith. That may sound like a classic contradiction, but hear me out on this. The nature of biologic agents prohibits FDA from applying the AB-type ratings to biosimilars that it uses to describe bioequivalent generic drugs. However, from a practical standpoint, does it really matter? Let’s look at this from the perspective of the FDA and that of the clinician.

The FDA defines interchangeable products as being:

“biosimilar to an FDA-approved reference product, and can be expected to produce the same clinical result as the reference product in any given patient. An interchangeable product may be substituted for the reference product without the intervention of the health care provider who prescribed the reference product.

“In addition, for a biological product that is administered more than once to an individual, the risk in terms of safety or efficacy of alternating or switching between the biological product and the reference product will not be greater than the risk of using the reference product without alternating or switching.

“An application for an interchangeable biological product also must include data or information to show that the proposed interchangeable biological product is expected to produce the same clinical result as the reference product in any given patient. In addition, for a product that will be administered more than once to an individual (as many biological products are), the application must include information that demonstrates that the risk in terms of safety or diminished effectiveness of alternating or switching between use of the proposed interchangeable product and the reference product is not greater than the risk of using the reference product without alternating or switching.”

The need for scientific studies characterizing the pharmacokinetic and pharmacodynamic profiles of the new agent and clinical studies to determine the biosimilarity of the product to the reference product is unquestioned. That said, what the FDA is basically saying in their definition, is that the manufacturer must conduct additional “switching” studies to prove that patient outcomes will be roughly the same after the patient is taken off a reference product and given the biosimilar and vice versa, and this must apply to any patient, not just a patient with an isolated indication. That's the science.

Here's the faith: If the FDA grants extrapolation to the biosimilar for the full set of indications, as it did for Celltrion’s Inflectra® version of infliximab, then it believes that patient outcomes will be roughly the same for any of these patients (despite the absence of large-scale clinical studies in some extrapolated indications). Interchangeability is then further defined by whether the switching studies have been done in all possible indications. Celltrion’s switching studies were limited to rheumatoid arthritis and inflammatory bowel disease (not psoriasis, psoriatic arthritis).

FDA takes it one step further, to define an interchangeable product as one not needing permission by a clinician in order for it to be substituted for the reference product by the pharmacy. That last bit is still a work in progress, as states grapple with passing legislation that allow pharmacists (community or specialty pharmacy–based) the authority to substitute biosimilars without needing a clinician’s permission.

From the physician’s standpoint, must prescribers have faith that Inflectra is interchangeable at the point of prescribing, based on FDA's ruling? It certainly can be prescribed for any new patient for whom Remicade® can be prescribed, assuming the health plan or insurer covers the medication in the first place. If a patient is already receiving Remicade therapy, can it be switched for the biosimilar if the clinician and patient care to do that (i.e., for cost reasons)? There is no stipulation that it cannot. If the switch is made, does that mean that this particular physician believes that the drug is interchangeable? This is merely semantics.

For all practical purposes, the answer is yes. Celltrion’s product has been used in Europe and elsewhere for many years in doctor’s offices for all of these indications, without untowards differences in outcomes.

Whereas the approving a drug to be biosimilar to another is extremely complicated, but I don’t think the interchangeability question is. The FDA feels the need to justify a level of certainty reflected by an AB-type rating given to conventional generic drugs, but this cannot be achieved in biologics. It then seems like a matter of faith: If FDA is willing to extrapolate the indications, they believe the therapeutic outcomes will be equivalent, even for diseases for which the biosimilar was not directly tested.

As we continue to await FDA’s long-delayed guidance on how it will designate the interchangeability of biosimilars, there seems to be little practical difference between expected equivalent outcomes in untested indications and the anticipated benefits of interchangeability.

Market Access, Sales Training, and the Mock P&T

Stanton R. Mehr, President, SM Health Communications LLC

stan.mehr@smhealthcom.com

www.smhealthcom.com

Over the past few years, I’ve espoused the need for and virtues of the mock Pharmacy & Therapeutics (P&T) Committee. One of our clients pointed out that I’ve neglected an extremely important benefit of conducting a mock P&T Committee. It is one that yields dividends in an area that cannot be overemphasized.

How many of your account managers, and even National Accounts executives, have sat in on a real P&T Committee? I’ll bet hardly any, as pharmaceutical companies are pretty much persona non grata when it comes to an actual, live formulary decision making for health plans and insurers. Some internal and third-party sales education programs try to give trainees exposure to the concept, but it is nearly impossible to get first-hand views of a P&T Committee in action.

Beyond obtaining a coverage decision on your product or that of your competitor, a rock solid mock P&T Committee will also provide a video record (in the form of a live feed or postmeeting DVD) of the entire proceedings. Most often, the people viewing the Committee meeting are product directors, market access managers, and brand executives. That’s great, but when the Committee members discuss a product’s shortcomings and benefits, wouldn’t that be exactly what the sales team needs to hear? What would be the value of learning the key drawbacks of a competitors product from the experienced members of a P&T Committee? What would be the value of packaging those comments, with the account team's strategy for addressing the same issues that will be brought up in the field?

When we talk about our P&T Insight™ program to potential clients, realizing this opportunity often gets their attention. Although we don’t consider it the key deliverable of the mock P&T Committee, it is a very attractive component, which complements sales training efforts, including launch activities.

For more information on this important benefit of our program and on P&T Insight™ in general, please contact me at stan.mehr@smhealthcom.com.  

SM Health Communications provides writing, consulting, and innovative market research services for the payer markets. Its proprietary P&T Insight™ virtual P&T Committee program is the leading mock P&T Committee product in the field. We’ve participated in many market research projects involving biosimilar development and launch, from the point of view of the biosimilar and the innovator drug manufacturer. For more information, please visit www.smhealthcom.com or contact Stanton R. Mehr, President, at stan.mehr@smhealthcom.com.