Medicare Part B Demo Would Increase Reimbursement for Lower-Cost Drugs

According to Avalere Health, physicians who prescribe lower cost drugs would be reimbursed at a higher rate than those who use more expensive drugs, under the proposed Medicare Part B demo model.

A detailed analysis by Avalere Health, of the proposed Medicare Part B project by CMS, has found that physicians who prescribe lower cost drugs would be reimbursed at a higher rate than those who use more expensive drugs—primarily specialists like oncologists, rheumatologists, and ophthalmologists.

CMS, in early March, announced the new value-based payment model for prescription drugs covered under Medicare Part B, with an emphasis on physician choice of high-value drugs and an incentive for improve outcomes. Several alternative approaches were proposed by this model, including indication-based pricing, reference pricing, and risk-sharing agreements.

Avalere has found that the proposed changes for physician-administered drugs could reduce reimbursement for drugs that cost more than $480 per day in 2016—7 of the top 10 drugs in that list are oncology medications. The first phase of this model proposes to reduce payment of the average sales price (ASP) of the drug from 106% of the ASP to 102.5% of the ASP, in addition to a flat fee of $16.80 per drug per day. Budget sequestration would further reduce the payments by an additional 2%.

According to the report, drugs that cost less than $480 would increase reimbursement for the physicians, but at the same time increase beneficiary out-of-pocket cost. “We have found that $480 is the tipping point for how Part B drug reimbursement would change under this new rule,” said Adam Borden, MHA, vice president at Avalere, and a co-author on the report. “Physicians who prescribe drugs that cost more would receive lower Medicare payments.”

The report notes a difference based on the site of service, with hospital outpatient departments projected to lose the most revenue ensuing these changes (60% of all payment reductions). Ophthalmologists would face the highest impact among specialists, the report states, facing 18% in payment reductions, while primary care doctors would actually benefit from the new model.

The findings tilt the balance against oncology agents that make up 70% of the drugs responsible for 50% of payment reductions—$252 million in Medicare reimbursement in the first year if implemented nationwide.

The gamble being sought by CMS is whether these changes would alter physician prescribing behavior. Wider implications of these changes could include patient access and maybe a shift in where patients receive care.