The 2017 Biosimilar Rule Revision

This is a sidebar article.  For our main blog, see DiscoveriesInHealthPolicy.com

###

CMS policy for biosimilar pricing had a major revision on November 2, 2017.

For the last several years, CMS had a policy to classify all biosimilars for a particular product under one code, and pay them at the quarter average sales price of the several biosimilars.   Since we don't have many or any categories with multiple biosimilars, this event hadn't really occured yet.

However, in big win for the biosimilar industry, CMS will begin categorizing each new biosimilar under its own HCPCS code from now forward (page 53348ff).

• Under "bucket" coding for biosimilars, CMS would likely have had lower prices, due to drug-on-drug competition to create a profit margin for physicians, by one-upping each other to give the physician more margin under the CMS payment price for the quarter.  
• For example, if a category pays $2000 for the biosimilar drug, each biosimilar would be incented to price for the physician at $1900, then $1800, then $1700, in a race to the bottom driven by competition to raise the physician's margin.
• However, a sufficiently adverse marketplace would mean biosimilars would stand down and not enter the US marketplace at all, a genuine concern.   See RAPS, October 30, here.
• CMS acknowledges that its change to biosimilar-specific coding will "address concerns about a stronger marketplace...encourage innovation to bring more products in the market."
• Note that while CMS sets payment policies only for itself, it also controls all HCPCS codes.  So long as CMS staff had refused to even create unique HCPCS codes, any efforts to get a better market in other payer venues was a non-starter. 
• Two other notes:
• It's unusual that a change this large could be accomplished without a regulatory change.  The requisite regulation, 42 CFR 414.904(j), does require that all biosimilars that are coded together would get an average price.  414.904(j) does not say whether CMS must, or must not, issue codes that group more than 1 biosimilar together.   CMS says, basically, it was discretionary within the regulation to lump biosimilars in one HCPCS code yesterday, and it will be discretionary now to give each biosimilar its own code tomorrow.  
• It's unusual in that the proposed policy discussion was quite short, and the final policy change and discussion was quite long.  Only in the final discussion did CMS reveal intentions and rationales in the final policy that couldn't have been guessed from the July proposal.
• CMS used long term economic incentive thinking and found on balance it needed to encourage market entry and innovation.  
• One might think of the legal economic analyses championed by Judge Richard Posner in many articles and books (here).
• See July proposal, November final, and Regulation bundled together by me into one PDF file here.

These rules help with pricing of biosimilars. 

Note that in the actual market, products will try to differentiate themselves with delivery devices, apps, or other methods.   See the ENBREL special delivery device from Amgen, here.   See Amgen's special NEULASTA delivery timer pod device, here, the ONPRO injector.   The more biosimilars enter for a particular product, the more likely there is to be injector or other differentiation methods in competition to create improvements for physicians and patients.