Medicare Announces Final Rule on Part D Biosimilar Formulary Substitutions, Including Noninterchangeable Biosimilars

The U.S. Centers for Medicare & Medicaid Services’ (CMS) annual Medicare Advantage and Part D final rule, published on April 23, 2024, will allow Medicare Part D Plans (PDPs) to change their biologics coverage policies in the middle of a plan year beginning in Calendar Year (CY) 2025 without a robust transition process for current branded biologic prescriptions. Among other key changes, the final rule will allow PDPs to immediately substitute all biosimilars, unbranded biologics, and authorized generics, not just those deemed “interchangeable.”

CMS based its final rule on existing substitution policy and two proposed rulemakings from December 2022 and November 2023, as well as various provisions of the Medicare Part D statute, as amended by the Inflation Reduction Act. Existing policy allows PDP sponsors to immediately remove from their formularies branded drugs and substitute newly released generic equivalents, but does not address substitution policies for biosimilars or authorized generics.

To address substitution for these products, in the December 2022 proposed rule, CMS proposed an “immediate negative formulary change” provision for interchangeable biosimilars, unbranded biologics, and authorized generics. The December 2022 proposal would allow PDP sponsors to substitute these medications for their corresponding branded product in the middle of a plan year without approval from CMS and with after-the-fact notice to beneficiaries, meaning the substitution could occur without notice to the beneficiary until after the new product has been dispensed. In the November 2023 proposed rule, CMS further proposed a substitution policy for noninterchangeable biosimilars that would allow PDP sponsors to substitute these noninterchangeable biosimilars for branded biologics with only 30 days’ prior written notice to beneficiaries and CMS.

The final rule includes the following key provisions affecting pharmaceutical manufacturers:

• Immediate Negative Formulary Changes for Interchangeable and Unbranded Biologics. Under the December 2022 proposed rule, CMS proposed to align the formulary change processes for “interchangeable” and unbranded biologics (a biologic with a different name that is identical to the branded formulation and marketed under the same Biologics License Application) with newly available generic drugs. CMS finalized a proposed definition for “immediate negative formulary changes” and associated notice requirements. Under the definition of immediate negative formulary changes, within 30 days of adding an interchangeable biosimilar or unbranded biologic not available when the formulary was created, a PDP sponsor may remove a brand-name biologic from a formulary, place it on a higher cost-sharing tier, or add more restrictive prior authorization, step therapy, or quantity limit requirements. Thus, under the final rule, beginning in CY2025, PDPs are permitted to immediately substitute a newly introduced, interchangeable biosimilar or unbranded biologic for a branded biologic. Further, PDPs need not provide beneficiaries with advance written notice of the specific changes; rather, written notice must be provided by the end of the month when the change takes place, by which time a substitution may have already occurred. Sponsors are required to notify CMS in the ordinary course with the next routine formulary update otherwise required under applicable Part D rules.
• Immediate Negative Formulary Changes for Authorized Generics. Similar to the process for interchangeable and unbranded biologics, CMS finalized an earlier proposal to align Part D formulary requirements for authorized generics with Part D formulary requirements for newly available generic medications. Under the final rule, authorized generics not on the market when the formulary was created may be added to the formulary and the corresponding branded drug removed from the formulary or moved to a lower coverage tier. Notice requirements are the same as those for interchangeable biosimilar substitutions.
• Maintenance Change for Noninterchangeable Biosimilars. CMS also finalized a process to substitute noninterchangeable biosimilars through a “maintenance change.” Under the definition of a maintenance change, PDP sponsors may remove or place on a lower coverage tier a branded biologic within 90 days of the plan adding a noninterchangeable biosimilar. There is no requirement that the biosimilar be newly introduced, unlike immediate negative formulary changes. The following notice requirements apply:
  • PDPs must provide 30 days’ advance notice to CMS and beneficiaries prior to a maintenance change. CMS is deemed to have approved the change if it does not act after 30 days. During this time, a beneficiary may continue to fill a branded prescription.
  • The notice must list alternative treatments, including those from different drug classes or with a different mechanism of action, as well as the reason for the change and the right of beneficiaries to request an individual coverage determination for nonformulary medications.
  • In the November 2023 proposed rule, CMS explained that it did not believe noninterchangeable biosimilars were appropriate for immediate negative formulary changes.

CMS considered several comments in adopting the final rule. These included the following:

• In discussing various comments and in its preamble, CMS stated that the purpose of the rule is to promote biosimilar uptake and use. Responding to comments arguing that the rule would not accomplish this goal, CMS stated that the rule provides “flexibilities that can be leveraged in negotiations with manufacturers to reduce costs to the government and Medicare beneficiaries.”
• The agency acknowledged that state pharmacy rules only allow substitution for interchangeable biologics and that biosimilar use will require new prescriptions before a beneficiary could change agents.
• In response to comments expressing opposition to the rule or highlighting difficulties for beneficiaries in switching, CMS noted that PDPs can change their formularies yearly and that an exceptions process for individual beneficiaries exists. The notification periods also provide beneficiaries time to make adjustments.

The rule will take effect beginning on January 1, 2025, and may affect market access bid cycles for pharmaceutical manufacturers.