CMS which runs Medicare is concerned about the growing cost of prescription drugs and has put out for comment proposals to change the way Part B costs are paid to doctors and hospitals. 72% of drug costs are paid to pharmacies but doctors and hospitals provide and administer drugs that account for 28% of costs through Part B. These costs are separate from the Part D drug plans which beneficiaries use to purchase regular prescriptions. Part B drugs include cancer medications and treatments in hospitals. Another high Part B drug cost is for eye injections for macular degeneration in older people.
Medicare believes the formula used for payment provides little incentive to keep costs down since it adds 6% to average prices. Doctors and hospitals make more if the drug is more expensive. Medicare spent $20 billion on Part B drugs in 2015. CMS says drug spending accounted for $457 million in health care costs which is 16.7% of health care spending in the United States. CMS says the proposals are part of its ongoing efforts to make “value based payments” that reflect not just a price formula but the impact of the drugs used on the health of the patient.
While this initiative is targeted to Medicare Part B, there is growing outrage about high drug costs that are in the thousands of dollars per prescription and Congress and state governments are looking at proposals to increase scrutiny of these costs in Medicare and Medicaid. Some insurance companies are threatening to eliminate some high price drugs from their formularies. Some state attorneys general are looking into price gouging charges against some drug companies. Recent news stories have reported on how some rogue companies deliberately inflated prices to maximize profits and sought to control the supply of their drugs to further drive up prices. Companies respond that their list prices are not what most insurers or the government pay, however overall costs and profits are still rising rapidly.
The press release from CMS identified six alternatives it is considering in pricing for Part B drugs “to improve outcomes and align incentives to improve quality of care and spend dollars wisely”
1. Improving incentives for best clinical care. Physicians often can choose among several drugs to treat a patient, and the current Medicare Part B drug payment methodology can penalize doctors for selecting lower-cost drugs, even when these drugs are as good or better for patients based on the evidence. Today, Medicare Part B generally pays physicians and hospital outpatient departments the average sales price of a drug, plus a 6 percent add-on. The proposed model would test whether changing the add-on payment to 2.5 percent plus a flat fee payment of $16.80 per drug per day changes prescribing incentives and leads to improved quality and value. The proposed change to the add-on payment is budget neutral.
2.Discounting or eliminating patient cost-sharing. Patients are often required to pay for a portion of their care through cost-sharing. This proposed test would decrease or eliminate cost sharing to improve beneficiaries’ access and appropriate use of effective drugs.
3.Feedback on prescribing patterns and online decision support tools. This proposed test would create evidence-based clinical decision support tools as a resource for providers and suppliers focused on safe and appropriate use for selected drugs and indications. Examples could include best practices in prescribing or information on a clinician’s prescribing patterns relative to geographic and national trends.
4. Indications-based pricing. This proposed test would vary the payment for a drug based on its clinical effectiveness for different indications. For example, a medication might be used to treat one condition with high levels of success but an unrelated condition with less effectiveness, or for a longer duration of time. The goal is to pay for what works for patients.
5. Reference pricing. This proposed model would test the practice of setting a standard payment rate—a benchmark—for a group of therapeutically similar drug products.
6. Risk-sharing agreements based on outcomes. This proposed test would allow CMS to enter into voluntary agreements with drug manufacturers to link patient outcomes with price adjustments.