CMS Proposes New Part B Prescription Drug Payment Model
On March 8, 2016, the Centers for Medicare & Medicaid (CMS) released a proposed rule which aims to test a new alternative payment design to pay for drugs covered under Medicare Part B. Medicare Part B covers prescription drugs administered in a physician’s office or hospital outpatient department. Currently, covered Part B drugs fall into three categories: drugs furnished incident to a physician’s service, drugs administered via a covered item of durable medical equipment, and other drugs specified by statute.
CMS found Part B payments for separately-paid drugs in 2015 were $22 billion, amounting to an average annual increase of 8.6% since 2007. Additionally, a new report from ASPE found drug price increases and a shift to prescribing more expensive drugs account for 30% of prescription spending growth.
Currently, most Medicare Part B drugs are paid using the Average Sales Price (ASP) plus a statutorily mandated 6% add-on. This creates an incentive to prescribe more expensive drugs due to the higher payment amount. Under the new model, Medicare Part B would pay the ASP plus an add-on of 2.5% and a flat fee of $16 per drug per day. The lower add-on and inclusion of the flat fee would decrease the incentive to provide more expensive drugs as the revenue for the drugs would be more evenly distributed.
CMS is proposing to introduce the new reimbursement program in select geographic areas in the fall of 2016. CMS will then roll out the second part of the experiment in which they will test several other pricing methodologies currently utilized by commercial health plans and pharmacy benefit managers. Some of these tools are: discounting or eliminating cost-sharing, providing feedback on prescribing patterns and decision support tools, basing pricing on a drug’s clinical effectiveness, and setting benchmarks for a group of therapeutically similar drug products.
The experiment will run for five years, with the Part 2 phase running the last three years. The evaluation will focus on whether the experiment reduces Part B drug spending, without limiting coverage or benefits, while maintaining or improving patient care.
Although all providers furnishing Part B drugs will be required to participate, some would be placed into control groups and will remain under the 6% add-on payment.
While CMS announced this new model would provide relief for certain providers, by relieving the pressure to provide higher cost drugs when they are not appropriate, the industry has already dealt out criticism for the new proposal, and CMS is bound to receive many comments on the new payment model. However, the private industry does already use “value-based pricing,” and CMS is seeking to use a similar methodology to bring costs down while maintaining value. CMS is accepting comments on this proposal until May 9, 2016.
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