Bringing Down Federal Spending: A Biosimilars Shared Savings Model To Lower Health Care Costs

Alex Brill, Founder of Matrix Global Advisors (MGA), an economic consulting firm, and a Resident Fellow at AEI, details how a CMS Innovation Center shared savings demonstration for biosimilars in Medicare Part B could save federal health care costs and promote competition.

Washington D.C. — Biologics, life-changing treatment options for patients with diseases like cancer, Crohn’s disease, and rheumatoid arthritis, accounted for 42% of the $344 billion U.S. drug market in 2018. A research paper released today by Alex Brill details how a shared savings demonstration model in Medicare can increase the use of biosimilars – lower-cost alternatives to innovator biologics – and lower Medicare Part B spending. At a time when the federal and state systems are financially strained, this paper explains how biosimilars present an opportunity to lower drug costs.

According to Brill, increasing biologic drug competition with a shared savings payment model for lower-cost biosimilars “offers not only the potential for significant savings to Medicare and patients, but also valuable assistance to the burgeoning biosimilars market.” Administered through the Centers for Medicare & Medicaid Innovation Center (CMMI), A shared savings model would adjust the reimbursement structure to encourage physicians to use lower-cost biosimilars, thus bringing savings to Medicare and taxpayers.

As Congress spends trillions to offset the costs of the coronavirus crisis, and with out-of-pocket costs skyrocketing, it’s more important than ever to reduce wasteful health care spending wherever we can. Biosimilars play a necessary role in helping bring those costs down,” said Juliana Reed, President of the Biosimilars Forum. “A biosimilars shared savings model would be a critical tool to save taxpayers and the federal government money at a time when our system is under extreme financial stress.

The shared savings model described by Brill would “align the incentives of the physician with the objective of Medicare to reduce unnecessary spending” by working to remedy the “perverse incentives to use more costly drugs.”

Brill outlines four principles for a successful shared savings model: voluntary provider participation, minimal enrollment and ongoing participation costs, optimization for fiscal responsibility, and broad stakeholder appeal. Brill notes that a successful CMMI model would provide important insights into how reimbursement policy affects physicians’ prescribing patterns.

The full paper can be found here.