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OIG Says that Increasing Use of Biosimilars Could Reduce Part D Spending

Last month, the Office of Inspector General for the Department of Health and Human Services (OIG) issued a report finding that Medicare Part D, and Medicare beneficiaries, could reduce spending with increased use of biosimilars. Specifically, OIG recommends that the Centers for Medicare & Medicaid Services (CMS) (1) encourage Part D plan sponsors to increase access to and use of biosimilars, and (2) monitor biosimilar formulary coverage to identify concerning trends.  Let’s unpack the OIG’s report.

What is a biosimilar?

Biological products are usually large, complex molecules produced in a living system. Known as “biologics,” they are among the most expensive prescription drugs. For example, in 2018, biologics accounted for 40% of total spending on prescription drugs even though less than 2% of Americans used biologics.

A biosimilar is a biological product that is highly similar to and has no clinically meaningful difference from its reference product, which is an existing product approved by the U.S. Food & Drug Administration (FDA). Biosimilars are typically lower cost biological products.

Part D Spending on Biosimilars

Most biosimilars are administered by a physician and are paid for under Medicare Part B as a medical benefit.  But, as additional biosimilars come to market, Part D spending in this area is expected to grow.  For example, biosimilars for two drugs covered only under Part D – Humira and Enbrel – are expected to be available in the U.S. in 2023 and 2029, respectively.  In 2019, Humira and Enbrel accounted for more than $5 billion in Part D spending, nearly half of all Part D spending on biologics.

OIG believes that increasing use of biosimilars now will reduce overall Part D spending in the years to come. However, the report cites a number of barriers that potentially limit the overall use of biosimilars:

  • Patients and providers do not know that biosimilars are available as alternatives.
  • Some providers are hesitant to switch patients who are already using a reference product successfully.
  • Potential confusion from FDA naming conventions, making biosimilars appear inferior.
  • Prescription drug benefit design, including formulary inclusion, tier placement, and overall beneficiary cost-sharing for biosimilars. 

OIG Methodology and Findings

OIG set out to analyze trends in biosimilar use and spend in Part D. Analysts explored multiple calculations and estimates as to how increased use of biosimilars might have impacted spending in Part D between 2015 and 2019.  The team also reviewed 2019 Part D plan formularies to understand coverage of biosimilars for Part D beneficiaries.

In general, OIG found that:

  • Use of biosimilars in Part D increased every year from 2015 to 2019.  However, biosimilars are used far less often than their reference products.
  • As use of biosimilars increased, so did Part D spending on biosimilars.  But, this spending is still a small portion of the overall Part D spend on biologics, generally.
  • Part D spending and beneficiary out-of-pocket costs for biosimilars, on a per prescription basis, was lower than for the biosimilars’ reference products.
  • Increased biosimilar use could have reduced Part D spending between 18% and 31% in 2019 and beneficiary spend between 12% and 22%, suggesting potential for greater spend reduction in the future.
  • Not all Part D plans covered available biosimilars in 2019, particularly those that were newly introduced. Most Part D plans that include biosimilars did not use other plan design tools to encourage biosimilar use.

These findings gave rise to OIG’s recommendations that CMS work to encourage Part D plan sponsors to increase access to and use of biosimilars and monitor biosimilar formulary coverage.  CMS agreed with OIG’s first recommendation, stating that it plans to “examine how demonstration projects could be used to incentivize the use of biosimilars” and indicating that it, “will continue to explore other options within its authority to increase access to and use of biosimilar drugs.”

In response to OIG’s recommendation to monitor formulary coverage, CMS did not agree or disagree and noted that its “formulary review process is limited to ensuring that formularies provide access to medically necessary treatments and that formularies do not discriminate against particular types of beneficiaries.”

It will be interesting to see what CMS puts forward in potential demonstration programs. In the meantime, we will continue to monitor government efforts related to drug pricing.

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Bridgette advises health care providers, ACOs, health plans, PBMs, and laboratories on regulatory, fraud and abuse, and business planning matters, applying her experience in health system administration and ethics in health care to her health law practice.