Recent activity by the federal government along with commercial payors may be indicative of further changes to how payors, providers, and pharmaceutical manufacturers engage in prescription drug arrangements.

A recently announced proposed rule by CMS would create a new Medicare Part B prescription drug payment model intended to improve quality of care and deliver better value for Medicare Part B beneficiaries. This new payment model represents the federal government’s response to increasing prescription drug prices in the Medicare program. According to a brief released by the HHS Office of the Assistant Secretary for Planning and Evaluation (ASPE), the current Part B payment model does not encourage physicians to choose the lowest cost therapy to effectively treat a patient.

Because Part B pays for most drugs separately, with no reference to other drugs of similar therapeutic effectiveness, there is no monetary incentive for providers, suppliers, or patients to make choices based on both cost and quality, according to the ASPE brief. Currently, Medicare Part B generally pays physicians and outpatient departments the average sales price (ASP) of the drug plus 6 percent. By changing the payment methodology, CMS hopes to “encourage better care, smarter spending, and healthier people by paying providers for what works, unlocking healthcare data, and finding new ways to coordinate and integrate care to improve quality.” Specifically, the new method would both reduce the 6 percent upcharge by nearly half and add a flat fee per drug per day.

The federal government is not the only payor contending with growing costs. Commercial payors have also been working on solutions to the problem of rising drug prices. Some commercial insurers, including Medicare Part D plan sponsors, are utilizing pricing policies or formulary management practices to increase the value of prescription drugs. Last year, in response to the announced price hike by Turing Pharmaceuticals of its drug Daraprim (commonly used by cancer and AIDS patients), at least one pharmacy benefits manager announced that it would contract with a compounding pharmacy to offer an alternative at $1 a pill.

Noting that “Medicare has not been able to employ a variety of formulary management practices that would potentially improve value for beneficiaries and the Program,” the ASPE brief maintains that “substantial savings” could be produced through the implementation of a variety of pricing policies and formulary management practices” under Medicare Part B.