Dec 5, 2024
Molly Borchardt | PharmD, Senior Director, Access Experience Team | Market Access
The growth of specialty drugs (medications that treat rare, complex, and chronic health conditions) has fueled new complexities in reimbursement, particularly for drugs paid for on the medical benefit, which usually include those administered by a healthcare professional. Previously, medical benefit drugs were not a major focus for payers. However, as the number of specialty drugs has increased, resulting in a rise of specialty drug expenditure, payers have begun to pay more attention to this group of pharmaceuticals. This has led to a change in pricing and reimbursement methods that have had impacts on provider reimbursement and rebate contracting. Reimbursement for medical benefit drugs is complex because of the way medical benefit drugs are billed, the multiple stakeholders involved, and complicated pricing and rebate structures.
Medical benefit drugs are billed quite differently from pharmacy benefit drugs. Pharmacy benefit drugs are dispensed at the pharmacy, which submits a claim at the point of service. Reimbursement to the pharmacy and patient out-of-pocket costs are established before the patient receives the drug. With medical benefit drugs, the process is reversed. Treatment of a patient with a medical benefit drug is initiated before the claim is submitted. This may confuse the provider and patient. They may assume the drug will be covered by the patient’s insurance when it is not. The co-pay amount for the patient may be unaffordable. And the provider may not be reimbursed sufficiently for both the cost of purchasing the drug as well as the administration to the patient.
Focusing on the last point above regarding appropriate provider reimbursement, the complicated dynamics of reimbursement to the provider have expanded over the last several years. Reimbursement to providers is often based off a “fee schedule,” which is a list of drugs with associated reimbursement set by the payer in the provider contract. The basis of the reimbursement of that fee schedule is most often the average sales price (ASP). Unlike other drug pricing methodology, which uses a set price by a manufacturer or distributor, the ASP is calculated and published for drugs on a quarterly basis by the Centers for Medicare & Medicaid (CMS). The ASP calculation takes into account all the discounts available in the marketplace and calculates the “average” price. Therefore, the more discounts that are available in the market, the more the ASP drops.
This methodology of the ASP has created a perverse incentive. Payers typically want to incentivize the use of lower-cost drugs when available. However, the ASP may incentivize the use of higher-cost drugs, particularly, if payers do not adjust fee schedules accordingly. A simplified example is below:
- Drug A is $100 and reimbursed at 110% ASP, which is $110
a. Assuming the provider can buy at an ASP of $100, their margin is $10 - Drug B is $1000 and also reimbursed at 110% ASP, which is $1100
a. Assuming provider can buy at ASP of $1000, their margin is $100
Therefore, the ASP method of reimbursement is leading to utilization of higher cost drugs and increasing overall healthcare expenditures.
Given the rise in specialty drug utilization and expenditures, the market is seeing an expansion of medical group purchasing organizations (GPO)s to leverage scale for negotiation of lower prices. One example of a newly created GPO is Synergie which is offering medical rebates to its investors that includes various Blue Cross Blue Shield plans, Elevance, Evio Pharmacy Solutions, Prime Therapeutics, and other independent health plans..1 Pharmacy benefit managers are also creating their own GPOs, who are offering medical rebates to stay competitive and create additional revenue streams. These GPOs are putting increased pressure on pharmaceutical manufacturers to provide discounts in order to be covered and preferred. This has increased the number of discounts in the market. Those discounts continue to erode the ASP of drugs, and as payers become better at moving market share to preferred drugs with medical rebates, that erosion deepens over time. Not only are payers benefiting from the rebates they are receiving, but they are also benefiting by reimbursing their providers less based on the lower ASP. Health plans may be even more incentivized to prefer high list price, high rebate medical benefit drugs due to the fact that they often pass-through less or even none of the medical rebates they receive to their employer group clients.
Biosimilars in the autoimmune and oncology space serve as an example of the changing dynamics in provider reimbursement for buy and bill drugs. While payers are winning from the uptick in biosimilar competition and downward pressure on prices, providers can end up in the crosshairs. As the ASP drops, physicians’ acquisition cost of the drug may not change or keep pace with the market. This may happen if they are not receiving discounts on the purchasing end.
Consider an example of a biosimilar that originally had a list price of $2000. If there are rebates that are driving the ASP down to $1500 and the providers are being required to use that product as a preferred product, but not receiving any purchasing discounts, they may be “upside down” on that product.
- Provider purchases preferred biosimilar for $1900
- ASP is currently $1500
- Payer reimburses provider at 110% ASP = $1650
- Provider is upside down $250 on the drug
There is also a risk for the manufacturer if they have not considered the potential impact of discounts offered to their ASP over time. There have even been instances where manufacturers had to short-supply the market to keep their ASP from continuing to drop.
There are a few solutions that can be put into place that can help keep the provider whole. For example, payers can consider how they reimburse providers. Medicare has changed the reimbursement of biosimilars from their standard ASP+6% to ASP+8% of the reference molecule. Payers can also consider adjusting their fee schedule to ensure they are keeping their providers whole when they require use of a preferred product. They can consider an add on flat payment for providers or other alternative payment model for providers that is not based on ASP; however, this would be a significant overhaul. Any considerations of adjustments to payments to providers is something they should also discuss when they are reviewing modeling with their GPO or other medical rebate administrator to ensure transparency and avoid over-inflation of their estimated savings.
This trend of competitive markets and offering rebates in the medical benefit drug space is only expected to grow. The solutions above may help decrease negative provider impact but will not stop the erosion of ASP. Manufacturers should consider these dynamics when deciding their strategy of whether they offer rebates and project how any discounts they are offering will impact their ASP over time. In the instance they are offering discounts, they can discuss with payers any terms around ensuring their product is not disadvantaged on reimbursement to providers, as well as consider placing a cap on rebates if ASP hits a predetermined basement.
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