CMS recently announced a proposed rule that would potentially create a new Medicare Part B prescription drug payment model. The proposed model is intended to improve quality of care and deliver better value for Medicare Part B beneficiaries. However, many providers and drug manufacturers have expressed concern that the new payment model will emphasize cost-cutting measures at the expense of ensuring beneficiary access to treatment. A number of groups, including the National Cancer Care Alliance and the Prevent Cancer Foundation, are urging Congress to withdraw the proposed rule in the interest of patient care. CMS has asked for comments on the proposed rule in general and specific areas of interest. Interested parties must submit comments no later than 5 p.m. on May 9, 2016.

Medicare Part B

Unlike for most drugs covered under Medicare Part D, Medicare Part B covers prescription drugs that are administered in a physician’s office or hospital outpatient department (e.g., oncology treatments). Specifically, drugs covered under Medicare Part B typically fall into one of three categories:

  • Drugs furnished incident to a physician’s service in the office or hospital outpatient setting
  • Drugs administered via a covered item of durable medical equipment
  • Other categories of drugs explicitly identified under applicable law

Currently, Medicare Part B generally pays physicians and outpatient departments the average sales price (ASP) of the drug plus 6 percent. Some believe that doing so encourages these facilities and/or physicians to use more expensive or specialty drugs. Specifically, those physicians or facilities that use cheaper drugs are penalized because their additional 6 percent reimbursement results in less money than is reimbursed to facilities treating the same patient with a more expensive drug.

By changing the payment methodology, CMS hopes to “encourage better care, smarter spending, and healthier people by paying providers for what works, unlocking health care data, and finding new ways to coordinate and integrate care to improve quality.” Specifically, the new method would reduce the 6 percent upcharge but would add a flat fee per drug per day.

The Proposed Part B Drug Payment Model

The new payment model would take place in two phases:

Phase 1

Under the new payment model, the add-on payment would be decreased from 6 percent to 2.5 percent. However, in addition to the upcharge, physicians or hospital outpatient departments would also receive a flat fee payment of $16.80 per drug per day. This model is intended to test whether this revised payment system alters prescribing incentives and leads to improved quality and value. CMS would update the flat fee at the beginning of each year by the percentage increase in the consumer price index for medical care for the most recent 12-month period. This phase will begin in late 2016, no earlier than 60 days after the final rule on the payment model.

Phase 2

Commercial health plans, pharmacy benefit managers, hospitals, and other entities that manage health benefits and drug utilization currently use various value-based pricing tools and feedback on prescribing patterns to improve the value of drug payments. CMS has identified such tools and feedback mechanisms that may be applicable for Part B drug payments to improve the value of such payments. This phase would begin no sooner than January 1, 2017.

These proposed value-based pricing strategies include the following:

  • 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.
  • 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.
  • 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.
  • 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.
  • Risk-sharing agreements based on outcomes. This proposed test would allow the Centers for Medicare and Medicaid Services (CMS) to enter into voluntary agreements with drug manufacturers to link patient outcomes with price adjustments.

Considerations for Affected Parties and Entities

Affected parties and entities should take advantage of the comment period, which closes May 9, 2016, to comment on specific areas of concern, including:

  • Monitoring per-patient drug usage. If CMS is concerned about reducing drug spend, will the agency also be monitoring drug usage per patient? By paying a per-drug fee, is CMS encouraging physicians to utilize drugs that previously were considered PRN (as needed for patients)? For example, will we see an increase in pain or anti-emetic medications?
  • Actual acquisition cost utilization. We note that this new methodology is not that much different from the methodology utilized in the AAC (actual acquisition cost) payment structures. Specifically, many AAC Medicaid-based programs now use the acquisition cost plus a small markup with a $10 or greater dispensing fee. By moving in this direction, is CMS showing its hand for future AAC utilization?
  • Greater recognition of pharmacist services. Will pharmacists encourage the adoption of this methodology? There has been a push for years for pharmacists to be recognized as a “practitioner” by CMS. By increasing the dispensing fee, or per-drug fee, and moving away from reimbursement based on ingredient cost, is there more recognition for the pharmacists’ services?