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by Amanda Conschafter, blog editor

Government efforts to close Medicare Part D’s so-called donut hole could have unexpected consequences, explains a new study from Avalere Health. The Affordable Care Act now requires manufacturers to discount by 50 percent drugs purchased by Medicare beneficiaries in the coverage gap. Yet the requirement excludes generic drugs and biosimilars. The ironic result: Some seniors could wind up paying more for supposedly low-cost biosimilars than for original biologics.

For years patients have appealed to lawmakers to address Part D’s coverage gap, during which beneficiaries who have exceeded initial coverage limitations must pay 100 percent of their drug costs until they qualify for catastrophic coverage.  In response, the Affordable Care Act combines manufacturer discounts with incremental increases in plan coverage and decreases in patient out-of-pocket expenses. The approach should shrink beneficiaries’ out-of-pocket costs during the coverage gap from 100 percent down to 25 percent by 2020.

Yet, as Avalere’s study points out, phasing out the donut hole creates a strange intermediary effect. In 2016, for example, Medicare beneficiaries in the coverage gap must pay 58 percent of the cost of a biosimilar – but only 45 percent of the cost of a biologic.

Assuming that U.S. biosimilars will cost on average 25 percent less than biologics, Avalere demonstrates that the difference in out-of-pocket percentages also produces a discrepancy in real dollars. In 2017, the report explains, a patient taking a $30,000-per-year biologic would pay approximately $1,536 more out of pocket for the biosimilar than for the biologic. In instances where biosimilar savings are less than 25 percent, such as with the United States’ first approved biosimilar, the cost disparity could be even greater.

Opting for biosimilars might also cause patients to linger in the donut hole. To exit the coverage gap and qualify for catastrophic coverage, patients must reach $4,850 in what’s known as true out-of-pocket spending. For biologic drugs, the manufacturers’ 50 percent discount counts toward patients’ $4,850 threshold. But for generics and biosimilars, beneficiaries must inch toward catastrophic coverage qualification using only their own spending.

Avalere Health proposes two potential policy solutions:

  1. Requiring a discount for biosimilars similar to that for biologics
  2. Creating a payment tier specifically for biosimilars that would reduce out-of-pocket costs so that biosimilars would no longer cost patients more than biologics do.

For more, see “Patient Out-of-Pocket Costs for Biosimilars in Medicare Part D.”

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