Medicare Proposes New Payment Plan for Part B Drugs

March 08, 2016

Medicare today proposed a new pricing plan for drugs administered in physician offices and hospital outpatient departments that would reduce an economic incentive to order a higher-priced drug when a less expensive one might work just as well, or better.

That incentive exists now because the Medicare Part B program pays providers the average sales price (ASP) of the drug, plus an extra 6% to cover handling and administration. That 6% margin translates into higher revenue as the price of a drug increases.

Under the proposed reimbursement model, Medicare Part B would pay the ASP, an add-on of only 2.5%, and a flat fee of $16.80 per drug per day, regardless of its price.

In a news conference today, a senior official in the Centers for Medicare and Medicaid Services (CMS) said that the new arrangement will prove liberating for many oncologists, who routinely administer chemotherapy drugs in their offices.

"We've heard from oncologists who feel pressure from their health systems to pick higher cost drugs when they're not appropriate for their patients," said Patrick Conway, MD, the chief medical officer at CMS and its deputy administrator for innovation and quality.

A report issued today by the Department of Health and Human Services (HHS) underscored the need to curb spending on Part B Medicare drugs.

The national tab for prescription drugs was $457 billion in 2015, or 16.7% of spending for all personal healthcare services, according to a report from the HHS Office of the Assistant Secretary for Planning and Evaluation. Of that amount, $128 billion, or 28.1%, went for nonretail drugs, which include chemotherapy, injectables, and eye care treatments administered in an outpatient setting.

The report puts the cumulative annual growth of prescription drug spending from 2013 to 2018 at 7.3% on average compared with an annual 5.2% increase in spending on all personal healthcare services. Price increases and a shift to prescribing more costly drugs in general account for about 30% of the overall growth of prescription spending, according to the HHS report.

Five-Year Study

CMS intends to introduce its new reimbursement framework for Part B drugs in select geographic regions late this year. In 2017, CMS will broaden its experiment by adding various pricing strategies now used in the private sector. These include discounting or eliminating patient cost-sharing, giving clinicians feedback on their prescribing decisions, and basing a drug's price on its clinical effectiveness in treating different indications. CMS will compare the new model with the status quo in other geographic areas for 5 years.

The full proposal for reimbursement of Medicare Part B drugs was filed today on the Federal Register. CMS will accept comments on its proposal through May 9. The Federal Register document contains instructions on how to submit comments to CMS.

Additional information on the plan is available on the CMS website.


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