Medicare Seeks New Ways to Pay for Part B Drugs

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By Steve Teske

March 8 — The Centers for Medicare & Medicaid Services wants to experiment with new ways of paying for Medicare drugs administered to beneficiaries in physicians' offices and hospital outpatient departments.

The agency released a proposed rule (CMS-1670-P; RIN: 0938-AS85) March 8 seeking comments on testing six different alternative approaches for Part B drugs. One alternative is changing reimbursement from the average sales price of a drug plus a 6 percent add-on, to a 2.5 percent add-on plus a flat $16.80 per drug per day. The agency said its expects new add-on payment and flat fee will cover the cost of any drug paid under Medicare Part B.

The CMS in a fact sheet said it 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 test would begin in late 2016, it said.

The CMS also is proposing eliminating patient cost-sharing; creating evidence-based clinical decision support tools; varying the payment for a drug based on its clinical effectiveness for different indications; testing the practice of setting a standard payment rate—a benchmark—for a group of therapeutically similar drug products; and allowing the Medicare agency to enter into voluntary agreements with drug manufacturers to link patient outcomes with price adjustments.

The rule is scheduled to be published in the March 11 Federal Register and comments are due by May 9.

Patrick Conway, acting principal deputy administrator and chief medical officer at the CMS, told reporters during a telephone conference call that the demonstration wouldn't interfere with physicians' choice of prescribing the best available medications for their patients.

“Nothing (in the demonstration) will prevent doctors from prescribing exactly what their patients need,” he said.

Pushback From Drugmakers

The drug industry expressed dismay with the proposal. “Proposing sweeping changes to Medicare Part B drug reimbursement without thoughtful consideration and stakeholder input is not the right approach and puts Medicare patients who rely on these medicines at risk,” the Pharmaceutical Research and Manufacturers of America said in a statement.

Medicare Part B covers prescription drugs that are administered in a physician’s office or hospital outpatient department, such as cancer medications, injectables like antibiotics, or eye care treatments. Drugs paid under Medicare Part B generally fall into three categories:

  • medications furnished in connection with a physician’s service in the office or hospital outpatient settings;
  • drugs administered via a covered item of durable medical equipment; and
  • categories of drugs explicitly identified in law.

    The agency in its fact sheet said the proposal is designed to test different physician and patient incentives to drive the prescribing of the most effective drugs, and test new payment approaches to reward positive patient outcomes. The plan will begin to be implemented in late 2016 and run for five years, the agency said. The demonstration will be budget neutral although the fact sheet said “CMS intends for the test to result in savings through changes in prescribers’ behavior.”

    Providers and suppliers would be placed in a control or study group based on Primary Care Service Areas, which are clusters of ZIP codes based upon patterns of Medicare Part B primary care services, the agency said. However, not all providers would be part of each test, it added.

    All providers and suppliers furnishing and billing for Part B drugs would be required to participate in the model, although not all would be part of each test and, with some exceptions, the agency is proposing to include all Part B drugs and biologicals in the model.

    Value-Based Purchasing

    The agency said its value-based purchasing strategies would be introduced early in 2017 and would include discounting or eliminating patient cost-sharing, which would decrease or eliminate cost sharing to improve beneficiaries’ access and appropriate use of effective drugs. The plan also 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 of this approach could include best practices in prescribing or information on a clinician’s prescribing patterns relative to geographic and national trends, the agency said.

    The CMS also is proposing to vary drug payments based on clinical effectiveness for different indications. For example, the agency said 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 proposal would introduce reference pricing, or the practice of setting a standard payment rate—a benchmark—for a group of therapeutically similar drug products, as well as risk-sharing agreements based on outcomes. The latter would allow the CMS to enter into voluntary agreements with drug manufacturers to link patient outcomes with price adjustments.

    Also on March 8, the Department of Health and Human Services released issue briefs on drug spending and on the Part B program. In the latter document, the HHS said the Part B payment method “provides weak incentives for physicians to consider value” when choosing an effective therapy to treat a patient (see related article).

    To contact the reporter on this story: Steve Teske in Washington at

    To contact the editor responsible for this story: Brian Broderick at

    For More Information

    The proposed rule is at The agency fact sheet is at