Strong Opposition to Change in Part B Drug Reimbursements

The Center for Medicare and Medicaid Services (CMS) recently proposed a pilot project to test alternative payment methods for drugs under Medicare Part B. These are the drugs administered in hospital outpatient clinics and physicians’ offices.

The pilot project would take place in limited areas. At issue is the perceived incentive for doctors to administer high-price drugs because reimbursement is a function of a drug’s cost. Currently, Medicare reimburses physicians and hospital outpatient clinics 106% of the average sales price of drugs. Say an oncology drug has an average price of $1,000.
Medicare would pay $1060 for its use. On the other hand, say a doctor used a cheap, older oncology drug that only cost $100, Medicare would reimburse $106. Policymakers view the additional $54 in fees as an incentive for doctors to prescribe drugs costing 10 times as much.

Another issue is that it (presumably) requires similar skills and effort to administer either of the two drugs mentioned above. Medicare has proposed reimbursing physicians $16.80 plus 2.5 percent of the cost of the drug. In the above example:

     $1,000      $100
       102.5%     102.5%
       $1,025   $102.50
        $16.80     $16.80
 $1,041.80  $119.30

As this example illustrates, doctors would still get paid more than double to administer a $1,000 drug as a $100 drug. But the marginal benefit would not be as much as under the old system. Doctors administering the $1,000 drug would receive an extra $41.80 above the cost of the drug. Doctors administering the $100 drug would receive $19.30 in additional pay.

Believe it or not, there is significant opposition in Congress, which may ultimately kill the measure. This is a good example why Congress and CMS will never have the willpower to slow Medicare spending. Anything that reduces taxpayers’ burden – no matter how minor – encounters intense opposition.

Drug makers oppose the change because they obviously want an incentive for doctors to choose high cost drugs. Patient advocates oppose the change because they perceive it would reduce access to high cost drugs for patients. Members of Congress on both sides of the aisle oppose it… because drug lobbyists oppose it (unless I’m mistaken). What am I missing here?

It’s hard to say whether this is a good change or a bad change; it’s merely a pilot project. Unless CMS is free to experiment, the whole program is doomed to bankrupt taxpayers.

Comments (4)

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  1. Barry Carol says:

    The fundamental problem here, in my opinion, is that oncology practices have to buy cancer drugs and then bill the insurer to get reimbursed. It’s very different from just prescribing a drug that the patient then picks up at his local retail drug store, pays his coinsurance amount, and the pharmacy bills the insurer for the rest.

    A few years ago, I think, United Healthcare tried an experiment with some oncology practices where it guaranteed the doctors the average profit they made per case as under the prior system regardless of which drugs they used. If a standard course of treatment is a certain number of weeks or months for a particular type of cancer, it would seem that the guaranteed profit approach would lend itself relatively well to such an episode of care.

    From a payer perspective, of course, it makes no sense to use a drug that costs ten or more times as much as an alternative if it’s no more effective than the cheaper drug or only marginally better at best.

  2. It is an experiment and after the experiment, they will be able to say what happened to the experimental group versus the control group. It is an experiment between two types of government payment mechanism, rather than government plus individual choice.

    Nevertheless, it is a fact that the government – by definition – has monopoly control over Medicare beneficiaries’ access to health care. If the government does not experiment, who else can?

    On the other hand, it is easy for politicians to decry “experimenting on our seniors”!

  3. Devon Herrick says:

    The same thing happened when CMS tried to create pilot projects to require competitive bidding on durable medical equipment (DME). The small business owners who sold DME lobbied their elected officials, who went to bat for them. Government programs should not be an economic development program for local establishments aspiring to be small business owners. If they cannot compete, they should find a different line of work. That is one reason Medicare Part D works so well. Medicare drug plans are private plans who drive a hard bargain with drug makers and they have to compete for seniors’ business.

  4. dennis byron says:

    It is not accurate to present this program as a “pilot” (Medicare calls it a demonstration). Adjusting the inventory-carrying-cost calculation is only one of the proposed changes being “piloted” by CMS. CMS also plans to pay less if the drug does not work and has said it will try a few other tweaks. Overall, this “pilot” will affect 75% of the country and last five years. This is just not related to multiple types of cancer but also to macular degeneration, rheumatoid arthritis, and other conditions

    I have also read but cannot independently say that some of the less expensive drugs that CMS wants doctors to use are off label from an FDA point of view and that it is highly likely that treatments will be moved from doctor’s office to the outpatient centers of hospitals, increasing costs instead of saving anything. Two or three parts of the proposal conflict with aspects of the 2015 MACRA law.

    All in all the whole thing is a poorly thought out “let’s throw a bunch of stuff at the wall and see what sticks” experiment. All 25 members of the Senate Finance Committee — from far lefty Sherrod Brown to Orin Hatch on the right — oppose it.