CMS Proposes Medicare Payment Reform for Prescription Drugs

Proposal will evaluate different physician and patient incentives that drive the most effective drugs to be prescribed with a new payment model.

The Centers for Medicare & Medicaid Services (CMS) announced a proposed rule yesterday that tests new models to improve how Medicare Part B pays for prescription drugs and lends support to physicians and clinicians in delivering higher quality care.

“These models would test how to improve Medicare beneficiaries’ care by aligning incentives to reward value and the most successful patient outcomes,” said CMS Deputy Administrator and Chief Medical Officer, Patrick Conway. “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.”

In 2015, the United States spend $457 billion of overall health spending on prescription drugs, while Medicare Part B spent $20 billion on outpatient drugs administered by physicians and hospital outpatient departments.

Addressing the Medicare Drug Cost Dilemma

These proposed tests look to test different physician and patient incentives that drive the most effective drugs to be prescribed and test a new payment approach that reward positive patient outcomes.

The proposal includes 6 different approaches to part B drugs:

  • Improving incentives for best clinical care: Physicians often can choose among several drugs to treat a patient, and the current Medicare Part B drug payment methodology can penalize doctors for selecting lower-cost drugs, even when these drugs are as good or better for patients based on the evidence. Today, Medicare Part B generally pays physicians and hospital outpatient departments the average sales price of a drug, plus a 6 percent add-on. The proposed model would test whether changing the add-on payment to 2.5 percent plus a flat fee payment of $16.80 per drug per day changes prescribing incentives and leads to improved quality and value. The proposed change to the add-on payment is budget neutral.
  • Discounting or eliminating patient cost-sharing: Patients are often required to pay for a portion of their care through cost-sharing. This proposed test would decrease or eliminate cost sharing to improve beneficiaries’ access and appropriate use of effective drugs.
  • Feedback on prescribing patterns and online decision support tools: This proposed test would create evidence-based clinical decision support tools as a resource for providers and suppliers focused on safe and appropriate use for selected drugs and indications. Examples could include best practices in prescribing or information on a clinician’s prescribing patterns relative to geographic and national trends.
  • Indications-based pricing: This proposed test would vary the payment for a drug based on its clinical effectiveness for different indications. For example, a medication might be used to treat one condition with high levels of success but an unrelated condition with less effectiveness, or for a longer duration of time. The goal is to pay for what works for patients.
  • Reference pricing: This proposed model would test the practice of setting a standard payment rate—a benchmark—for a group of therapeutically similar drug products.
  • Risk-sharing agreements based on outcomes: This proposed test would allow CMS to enter into voluntary agreements with drug manufacturers to link patient outcomes with price adjustments.

“First and foremost, our job is to get beneficiaries the medications they need,” said Acting Administrator for CMS, Andy Slavitt. “These proposals would allow us to test different ways to help Medicare beneficiaries get the right medications and right care while supporting physicians in the process. This is consistent with our focus on testing value-based care models like we have been doing with physicians and hospitals in ACOs. Models like this one can help doctors and other clinicians do what they do best: choose the medicine and treatment that keeps their patients healthy.”

The Center for American Progress (CAP) praised the effort to test new approaches for Medicare to pay for high-cost drugs.

“We applaud the administration’s decision to propose a prescription drug model to test new ways to pay for prescription drugs. Importantly, the agency has designed a proposal that we hope will not only fix the current financial incentive for doctors to prescribe costlier drugs—even when lower cost, equally effective drugs are available—but will also start to push back on some of the sky-high prices that drug companies charge for their products,” said Topher Spiro, vice president for Health Policy at CAP. “The proposed model will help millions of Medicare beneficiaries; it would test reforms that lower or eliminate cost-sharing for the most effective drugs and link payment to positive patient outcomes. We are also pleased that the agency is considering ways to include prescription drug payment reforms in its broader efforts to move Medicare away from the fee-for-service payment system.”