Medicare Proposes Tying Drug Costs to Effectiveness

Medicare Proposes Tying Drug Costs to Effectiveness

The Centers for Medicare and Medicaid Services (CMS) recently announced plans to test new ways to rein in costs of some of the nation’s most expensive drugs, like cancer and rheumatoid arthritis treatments, that are administered in doctors’ offices and outpatient centers.  The current Medicare Part B payment system, officials argue, provides incentives for prescribing the most expensive medication, rather than on how well it would work for the patient.

While most prescription drugs are paid for by beneficiaries and their Medicare Part D plans, Medicare Part B spends about $20 billion on pricey drugs that must be given intravenously or by injection by trained healthcare professionals.  Medicare pays the healthcare provider the average sales price, plus 6% for the costs associated with the purchase and storage of the medications.  For example, if a drug costs $1,000, the doctor would receive an additional 6% payment, or $60, but if a similar drug costing $5,000 were used instead, the doctor would receive $300 instead.

CMS recently announced it would change the current reimbursement formula by cutting the 6% payment that health providers receive, to 2.5% of the average sales price, plus a flat fee payment of $16.80 per drug per day.  CMS says the proposed fee cut would test whether prescribing incentives would change, and whether it leads to improved care.  CMS is also expected to test eliminating the patient cost - sharing, which TSCL believes would lower some beneficiaries’ costs, and improve access to critical drugs. In addition, CMS plans to test new model payment systems in the following ways:

  • gain information on which drugs are the most effective,
  • experiment with setting a standard payment rate for a group of “therapeutically” similar drugs,
  • and enter into voluntary agreements with drug manufacturers to link patient outcomes with price adjustments.

The goal is to pay more for treatments with high levels of success rates, but less for ineffective drugs or those that require long-term treatment.  TSCL, however, is wary.  “Medicare patients with cancer and other life - threatening conditions frequently must try multiple drug therapies for their complex conditions,” says TSCL Executive Director, Shannon Benton.  “Medicare needs to do a better job of containing costs, but patients need access to the right medication,” she adds.  The proposed changes aren’t expected to take effect until later this year, and TSCL will be monitoring these changes closely.


Sources:  “CMS Proposes To Test New Medicare Part B Prescription Drug Models,” Centers for Medicare & Medicaid Services, March 8, 2016.