Delivering Benefits Through Biosimilar Conversion
Pathstone developed drove $767K in expected annual net margin enhancement.
The Challenge
A large 11-hospital health system in the southern region recognized a need for external support to identify and implement solutions to enhance net margin within their pharmacy operations. Upon analyzing initial core data, the pharmacy to convert several reference drugs to biosimilars, which are biological products that have no clinically meaningful differences in terms of safety, purity, and potency, to reference drugs. For example, the reference drug for Pegfilgrastim, an injection received after receiving chemotherapy to promote white blood cell development, is Neulasta, while approved biosimilars for Pegfilgrastim include Nyvepria, Fulphila, Udenyca, and Ziextenzo.
Initial opportunity was identified at ~$750K in annual net margin opportunity through converting Pegfilgrastim, Bevacizumab, and Trastuzumab to biosimilar products with higher net margins.
Solutions
Pathstone’s pharmacy consultants began by segmenting purchases by reference drug category (e.g., Pegfilgrastim) and account type (e.g., 340B, GPO), and charges by account type and payor type (e.g., Medicare, Commercial). It was quickly determined that there was significant financial opportunity through converting biosimilar products for 340B Medicare.
Pathstone began the analysis focusing on Medicare given the reimbursement rates are publicly set by CMS through Healthcare Common Procedure Coding System (HCPCS). The highest net margin biosimilars for 340B Medicare were Nyvepria (Pegfilgrastim), Zirabev (Bevacizumab), and Ontruzand (Trastuzumab).
Pathstone subsequently investigated opportunity on the 340B Commercial side by examining fee schedules by payor for the top five commercial payors. The highest net margin biosimilars on the Commercial side were very similar to Medicare, with minor variance in the biosimilar with the highest net margin for a given reference drug. However, payors do not always reimburse for all biosimilars.
Results
Over a ~six-month period of working with , biosimilar identification strategy that Pathstone developed drove $767K in expected annual net margin enhancement. As costs and reimbursement are subject to fluctuation, Pathstone developed methodology for tracking and monitoring realized net margin gains on a monthly basis to be able to pivot if and when other biosimilar products yield higher net margins.
Key Takeaways
Reimbursement is a Critical Lever
Hospital systems typically prioritize cost savings opportunities over additional reimbursement opportunities. For biosimilar conversion, the additional reimbursement gained through switching drugs typically outweighs the cost savings. Moreover, some biosimilars may incur additional cost while still yielding the highest net margin.
Biosimilars are a Dynamic Industry
It is critical to regularly monitor cost and reimbursement fluctuations to ensure an organization is maintaining use of the highest net margin biosimilar. Many additional biosimilars will be approved in the coming months and years as well.
Coordination is Key
It is critical to ensure that there is an operational system in place that is correctly purchasing and billing the correct biosimilar based on payor type and specific payor to have success. Pathstone helped set up a cross functional committee with representatives from pharmacy, billing, and reporting to meet on a regular basis to monitor usage and troubleshoot pain points.
