Medicare Advisers Aim to Inject Savings Into Doctor-Administered Drugs

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By Mindy Yochelson

Pay changes to combat rising prices in Medicare’s multibillion-dollar office-administered drug benefit got strong support from a panel of congressional advisers.

The draft package crafted and debated by the Medicare Payment Advisory Commission March 2 tries to chop payments for Part B drugs on a variety of fronts. Examples include cuts to add-on payments for pharmaceuticals, and requirements for drugmakers to pay rebates when the prices of their products exceed a certain level.

Medicare pays doctors for these treatments based on manufacturers’ average sales price plus 6 percent, known as ASP + 6 percent.

An overhaul is needed because spending on drugs that are injected or otherwise given in medical offices and outpatient departments grew to $26 billion in 2015, $3 billion more than in 2014, MedPAC said. It’s believed that the “buy and bill” payment system with its add-on provides incentives to use higher-priced pharmaceuticals.

The MedPAC commissioners will vote in April on whether, and in what form, to send the recommendations to Congress in June.

Market Competition

A centerpiece of the recommendations is the creation of a voluntary market-based program in which private vendors would negotiate prices with manufacturers on behalf of medical providers. Providers would enroll, rather than purchasing the products from a distributor.

The Drug Value Program would start in 2022 with a small number of private vendors. Medicare would reimburse the doctors based on the negotiated price and the vendors would, in turn, receive an administrative fee. They also would have opportunities for shared savings.

After the program was up and running, the 6 percent add-on would be reduced to encourage doctors to enroll.

Been Down That Road

The vendor program isn’t the first time Medicare has tried this approach.

A previous incarnation, known as the competitive acquisition program, experienced low enrollment and died in 2008.

The proposed program is intended to offer vendors more bargaining leverage. They can use a formulary, for example, unlike under the previous program in which all drugs had to be offered.

The formulary is expected to spur price competition among products with therapeutic alternatives, Kim Neuman, a MedPAC analyst, said at the March 2 meeting.

Nips and Tucks

In the meantime, the commissioners want Congress and the Department of Health and Human Services in 2018 to undertake other changes, including requiring penalties for drugmakers that fail to report ASP data.

Another recommendation would be for Congress to cut in half—from 6 percent to 3 percent—the add-on payment for new single-source drugs and biosimilars that are reimbursed at the wholesale acquisition cost.

Under another proposal, manufacturers would have to pay Medicare a rebate when the ASP for their product exceeds an inflation benchmark. “Savings from rebates would be shared with beneficiaries by basing cost-sharing on the lower inflation-adjusted average sales price,” Nancy Ray, a MedPAC analyst, said at the meeting.

In addition, the Medicare agency would be required to use a common billing code to pay for a reference biologic (the branded drug) and its biosimilars.

Currently, “we do not have maximum competition for single-source drugs and reference biologics because they are each paid under their own billing codes,” Ray said. Medicare should pay similar rates for similar care, she said. That way, doctors would be more likely to choose the most appropriate product.

Backing the Recommendations

“I fully support the recommendations,” Commissioner Craig Samitt, an executive vice president and chief clinical officer at Anthem Inc., said. “In fact, I don’t think they go far enough” toward reining in unsustainable increases in drug costs.

“We should go ahead and see what happens, assuming Congress wants to follow up on this fine advice,” Commissioner Jack Hoadley, a research professor at Georgetown University, said.

However, it’s unclear whether Congress and the administration would consider the recommendations.

A series of suggested changes to the Part D drug benefit in 2016 has yet to be considered.

Not Thrilled

Not surprisingly, drug manufacturers and oncology practices objected to the draft recommendations.

“Proposed changes to Medicare Part B could have a detrimental impact on access for patients who rely on Part B therapies,” Allyson Funk, senior director, public affairs, Pharmaceutical Research and Manufacturers of America, told Bloomberg BNA.

“The current Medicare Part B payment methodology is an effective, market-based pricing mechanism that successfully balances patient access with controlling costs,” she said.

Ted Okon, executive director of the Community Oncology Alliance, called the focus on Part B reimbursement “misguided and disconcerting.”

“MedPAC is proposing changes that will accelerate the shift of care from physicians’ offices to hospitals,” he told Bloomberg BNA. “That’s because MedPAC doesn’t understand the fragile nature of the current Part B system for physicians and, especially in oncology, the huge profit motivations for hospitals to acquire physician-owned practices.”

To contact the reporter on this story: Mindy Yochelson in Washington at MYochelson@bna.comTo contact the editor responsible for this story: Kendra Casey Plank at

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