CMS Proposes New Payment Models for Part B Drugs

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The five-year Medicare initiative seeks to change the way in which drugs are reimbursed under Medicare Part B.

Concerns that physicians are not prescribing the most cost-effective medications available have prompted the Centers for Medicare and Medicaid Services to propose a set of new potential reimbursement schemes for Part B drugs in Medicare. CMS says the new proposed rule will test new payment approaches to reward good patient outcomes and will inject value into the system.

Prescription drug spending in the United States totaled approximately $457 billion in 2015, or 16.7% of overall health spending, according to a CMS report released on March 8, 2016. In 2015, Medicare Part B spent $20 billion on outpatient drugs administered by physicians and hospital outpatient departments.

Medicare Part B drugs-which are typically administered in a hospital, in a physician’s office, or in an outpatient setting-are currently reimbursed by a drug’s average sales price plus 6%. Rather than this rate, which has the potential to give physicians an incentive to choose costlier medications when cheaper alternatives are available, CMS proposes that the rate be lowered to 2.5% and be coupled with a flat fee of $16.80 per drug per day. CMS estimates that this new reimbursement method will cover the cost of any drug paid under Medicare Part B, but did not provide examples of high-cost drugs that may not be fully reimbursed under this scheme. The new rates would provide bigger incentives than were previously available for physicians to prescribe lower-cost medications. Although providers would be making slightly less than before for choosing costly medications, they would still stand to make more of a profit in these circumstances than they would for choosing lower-cost alternatives.

Under the proposal, CMS suggested various additional changes to help pay for drugs under Part B. These include decreasing or eliminating cost sharing for patients, using reference pricing for groups of therapeutically equivalent drugs, linking patient outcomes with pricing adjustments, providing physicians with feedback on prescription best practices and a physician’s patterns compared with other providers in a region or across the nation, and reimburse for a drug based on its proven efficacy for a particular indication.

The CMS plan would run over the course of five years, but value-based purchasing tests would not be fully operational until the beginning of 2019. “These models would test how to improve Medicare beneficiaries’ care by aligning incentives to reward value and the most successful patient outcomes,” said Patrick Conway, MD, CMS deputy administrator for Innovation and Quality and CMS chief medical officer. “The choice of medications for beneficiaries should be driven by the best available evidence, the unique needs of the patient, and what best promotes high quality care.”


The Pharmaceutical Research and Manufacturers of America group (PhRMA) released a statement on March 8, 2016 saying that the current Medicare Part B payment methodology already controls costs effectively, and that the United States Department of Health and Human Services (HHS) has already successfully tied 30% of Medicare payments to accountable-care organizations. PhRMA spokesperson Allyson Funk added in a statement, "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."

Meanwhile, the American Society of Clinical Oncology said the proposal that seeks to modify ASP "misses the mark" and says that "it is inappropriate for CMS to manipulate choice of treatment for cancer patients using heavy-handed reimbursement techniques." The organization plans to send detailed comments to CMS about the problems with the proposal, adding, "Physicians did not create the problem of drug pricing and its solution should not be on their backs."

The deadline for comments on the proposed rule is May 9, 2016.

Sources: CMS, HHS, PhRMA, ASCO