WASHINGTON -- Medicare is proposing to experiment with the way it pays for drugs that are covered by its Part B program, the Centers for Medicare & Medicaid Services (CMS) announced Tuesday.
"[We want to] test how we can improve quality and value through the way Medicare Part B pays for prescription drugs," said , CMS chief medical officer, in a conference call with reporters. "Our goal is to support physicians and other clinicians in delivering high-quality care to their patients."
Medicare Part B pays for drugs that are administered in a physician's office or hospital outpatient department. Generally, Medicare pays the physician the drug's average sales price (ASP) plus a 6% add-on payment. As a result of that payment structure, physicians may be incentivized to choose a higher-priced drug because their reimbursement will be higher, Conway explained.
Such a result is contrary to Medicare's current push to pay for value and outcomes across the healthcare system, he continued. Therefore, Tuesday, which would test a payment model that would reduce the add-on payment to 2.5%, but would add a flat fee of $16.80 per drug per day. The flat fee would be updated at the beginning of each year. This payment scheme would be tested starting in late 2016, according to CMS.
In a , the agency gave examples of how the new model would play out. For a Part B drug that has an ASP of $5, physicians are currently paid $5.30 (the ASP plus 6%). Under the new model, they would be paid $21.93 (the ASP itself, plus 2.5% of the ASP plus $16.80).
For a drug with an ASP of $10, physicians are currently paid $10.60 but would receive $27.05 under the new model. But the situation is reversed as the drug cost rises: for a $1,000 drug, physicians are currently paid $1,060 but would receive only $1,041.80 under the new model.
CMS is also planning to test several other Part B drug value-based purchasing ideas beginning in 2017, including:
- Discounting or eliminating patient cost-sharing. This model would test whether decreasing or eliminating cost sharing improves beneficiaries' access and appropriate use of effective drugs.
- Feedback on prescribing patterns and online decision support tools. These would be a resource for providers and suppliers focused on safe and appropriate uses of selected drugs. Examples might include best practices in prescribing or information on a clinician's prescribing patterns compared with geographic and national trends.
- Indications-based pricing. This model would vary the payment for a drug based on its effectiveness for different indications, so that a drug that's more effective for Indication A would be reimbursed at a higher price than it would if given for Indication B, for which it was less effective.
- Reference pricing. This model would test the practice of setting a standard payment rate for a group of therapeutically similar drug products.
- Risk-sharing agreements based on outcomes. Under this model, CMS would enter into voluntary agreements with drug manufacturers to link patient outcomes with price adjustments.
Conway did not give specifics about where the payment models would be tested, saying only that the testing would be done "in different geographic areas across the country -- so there will be areas where there are no changes, other areas where they just may have ASP changes, and other areas where they may have the ASP changes plus value-based payment arrangements."
"This proposed rule is designed to align incentives with what's best for patients and doctors," Conway said. "Doctors want to prescribe medications without worrying about finances or what administrators think ... The current perverse incentive structure doesn't benefit patients or the system."
Conway emphasized that "Nothing in this proposed payment model will prevent doctors from prescribing exactly the treatment they think their patients need. The model will encourage doctors to choose the drug that is right for their patients."
In addition to CMS's announcement of the proposed rule, the Department of Health and Human Services (HHS) also released two drug pricing reports on Tuesday.
One of the reports was about the same issue Conway was concerned with: Part B drug spending. found that -- similar to what Conway told reporters -- the current payment method "provides weak incentives for physicians to consider value -- that is choose the lowest cost therapy to effectively treat a patient," and that the Medicare program has not implemented various value-based practices typically used by commercial insurers and Part D sponsors for self-administered drugs.
The , on overall drug spending trends, found that drug spending increased by a "remarkable" 12.6% in 2014, and that "drug spending growth is estimated to have remained elevated in 2015," the agency said.