Medicare Advisers Aim to Trim $26B Drug Program

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By Mindy Yochelson

Doctors who administer prescription drugs in their offices to Medicare beneficiaries would have the option of getting lower-priced drugs from private vendors, under a proposed program being weighed by a federal advisory panel.

The changes discussed are aimed at reducing the 9 percent annual growth for Part B drugs that cost $26 billion in 2015.

Doctors could still buy Part B drugs directly from drug manufacturers and distributors and bill Medicare, but their reimbursements would be lower than they get currently to encourage enrollment in the market-based vendor program, staff for the Medicare Payment Advisory Commission said Jan. 13.

Medicare pays doctors for outpatient drug treatments, such as chemotherapy, based on manufacturers’ average sales price plus an additional 6 percent, known as ASP + 6 percent.

Revamping Drug Payment System

Medicare would encourage clinicians to join the vendor program, to be called the Drug Value Program, by gradually reducing the 6 percent add-on and making other changes to the current reimbursement system.

The changes wouldn’t happen overnight. The vendor program would be phased in with a subset of drugs and could take until 2022 to implement, staff said.

In the meantime, the “improved ASP system” for those who continue to buy and bill would be restructured in the next few years.

The commissioners will debate draft recommendations in March and are expected to vote on them in April.

Possible Changes

In addition to reducing the ASP add-on, the changes would:

  •   consolidate billing codes by requiring the same code for reference biologics (the branded drug) and their biosimilars so that Medicare is paying a similar rate for similar care;
  •   adopt a legal cap on the amount a drug price can increase by requiring manufacturers to pay a rebate when the ASP for its drug exceeds the inflation-adjusted ASP for its billing code;
  •  cut in half the add-on payment for new single-source drugs and biosimilars that are paid at the wholesale acquisition cost (WAC) from 6 percent to 3 percent; and
  •  require manufacturers to report their ASP data for all Part B drugs, not just those with Medicaid drug rebate agreements, and increase civil money penalties for nonreporting.

Drug Value Program

The new market-based program would allow vendors to negotiate prices with manufacturers and permit doctors and other providers who enroll to share in the savings. Beneficiaries would also save through lower cost sharing.

The model would resemble a group purchasing organization with multiple vendors that could use formularies and other management tools, such as step therapy and prior authorization, to keep prices down.

Commission Reaction

MedPAC Commissioner Brian DeBusk applauded the “multi-faceted” approach of the proposed program, which was developed by MedPAC staff. DeBusk is chief executive officer of DeRoyal Industries in Powell, Tenn.

Commissioner Rita Redberg, professor of clinical medicine at the University of California at San Francisco Medical Center, said the proposed provisions on consolidated billing would address concerns about biosimilars that are priced higher than brand name drugs.

Most of the other commissioners appeared interested in pursuing changes, although some had concerns.

For example, “behavioral economics” might lead some providers to increase the number of drugs they purchase to compensate for the lower add-on, Commissioner David Nerenz, director of the Detroit-based Center for Health Policy and Health Services Research at the Henry Ford Health System, said.

The new value program is a plus in that it would allow another entity to set different payment rates rather than just the ASP plus 6 percent, Commissioner Kathy Buto, a former deputy executive secretary for health at the Department of Health and Human Services, said. However, she added that more information is needed to see if the program will actually lower prices.

To contact the reporter on this story: Mindy Yochelson in Washington at

To contact the editor responsible for this story: Kendra Casey Plank at

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