Inflation Reduction Act Takes Effect: Biosimilar Payment Boost for Medicare

CMS and the Department of Health and Human Services (HHS) have initiated certain elements of the Inflation Reduction Act related to biosimilars.

On October 3, 2022, the statements from the Inflation Reduction Act related to price-setting for biosimilars in Medicare went into effect. It is one of the first facets of the extensive law that healthcare leaders have implemented. The statements can be found in section 11403 of the Inflation Reduction Act.

The Act called for a Medicare payment boost for eligible biosimilars. Typically, Medicare pays the average sales price plus six percent for a biosimilar product and separately payable drugs. The average sales price, which is reported to CMS on a quarterly basis, consists of the manufacturers’ sales to US purchasers excluding rebates, discounts, and price concessions.

There are exceptions to these rules, but this is the typical format.

The new boost from the Inflation Reduction Act increases the add-on payment for these treatments with an average sales price that is equal to or below the reference biological price. Under the new law, for the next five years eligible biosimilars will be available for the biological reference products’ average sales price plus eight percent, instead of six percent.

The goal of this part of the Act is to support biosimilar production as a competitor for biological products in order to drive down healthcare costs.

“CMS is swiftly implementing the historic Inflation Reduction Act to make the new law and the benefits it provides a reality for the people we serve,” said CMS Administrator Chiquita Brooks-LaSure.

“The temporary Medicare Part B payment increase for qualifying biosimilars that is now in effect will foster competition in the drug marketplace for conditions such as diabetes, cancer, and immune disorders, and will improve access to these life-saving medicines that help keep people with Medicare healthy.”

The five-year period for the payment boost started on October 1, 2022 for biosimilars that received payment using the existing regulations. For drugs that emerge between October 2022 and the end of December 2027, the five-year period starts on the first day of the calendar quarter that the payment is made.

“Today’s action marks a critical step toward reducing health care costs for American families and increasing competition. We’re moving full-speed ahead on Inflation Reduction Act implementation to deliver results for millions of Americans,” HHS Secretary Xavier Becerra said.

When the Inflation Reduction Act was released, many leaders in the health insurance industry praised the law. In particular, payers approved of the expansion of American Rescue Plan Act subsidies, which the law extended for the next three years.

However, the drug negotiation section of the Inflation Reduction Act generated concerns among experts, particularly those in the employer market. The law allows Medicare to negotiate prescription drug costs with pharmaceutical companies as long as the drugs have no generic or biosimilar products associated with them.

Potential impacts are unclear, but the law could generate Medicare savings that result in higher costs for employers if hospitals hold employers responsible for recouping those costs. Alternatively, it could result in employers being able to negotiate prices down to Medicare payment levels.

Some employers have been trying to use biosimilars to reduce costs, but would require better biosimilar education and prescription drug management strategies for use to become widespread. The Office of the Inspector General (OIG) has supported using biosimilars to reduce drug spending.