In April, the Medicare Payment Advisory Commission (MedPAC) voted to approve several proposals aimed at decreasing Medicare spending for Part B physician-administered drugs—proposals that were formally submitted to Congress in June. MedPAC projected that the proposed policies would have a first-year savings of up to $750 million, increasing to $5 billion over 5 years.1
Unfortunately, MedPAC’s recommendations are centered around the creation of a Drug Value Program that combines 2 previously abandoned programs and could quickly backfire, accelerating the shift in cancer care from cost-efficient physicians’ offices to more-expensive hospital settings, fueling dramatic increases in Part B expenditures.
Proposals Blend Concepts From 2 Highly Scrutinized Programs
MedPAC’s recommendations are nothing new. They incorporate aspects of CMS’ controversial Part B drug-payment demo program (designed to eliminate the financial incentive to choose higher-cost drugs) with CMS’ Competitive Acquisition Program (which involved obtaining drugs from lowest-cost suppliers). The demo program never got off the ground and was tabled last year because of fierce opposition, while the Competitive Acquisition Program failed miserably over a decade ago.
The demo program, known as the Part B Drug Payment Model, would have involved a broad reduction in drug payment from average sales price (ASP) plus a 6% markup to ASP plus 2.5%, plus a small flat fee. Taking federal sequestration cuts into account, the proposed reductions would have devastated community oncology, actually reducing payment to ASP plus 0.86%, with a small add-on fee. For practices, many drugs would have been obtainable only at a financial loss, jeopardizing access to lifesaving therapies.
The opposition to the program was swift and strong, with more than 300 House members either opposing the program or expressing deep concerns about it.2
The near unanimous bipartisan opposition, as well as resistance from 316 healthcare and patient advocacy organizations,3
resulted in CMS’ shelving the proposal.
Unfortunately, MedPAC’s new recommendations are the Part B demo all over again, driven by the misconception that physicians always choose the most expensive drug to maximize profits. MedPAC keeps drawing the wrong conclusions, most likely because it has only limited knowledge of how appropriate therapies are chosen for patients with cancer. Drugs are paid for at a percentage of what they actually cost, and to MedPAC’s way of thinking, that incentivizes physicians to use drugs that are more expensive. However, that reasoning is flawed, especially when it comes to oncology pharmaceuticals.
First, there are very few drugs in cancer care that have the same efficacy and toxicity and are interchangeable—a critical fact MedPAC doesn’t realize. Physicians cannot simply pull up several drug choices and decide based on cost, because in many cases, there are no alternative choices. Second, MedPAC erroneously assumes that ASP is what a provider pays for the drug. Not so. The ASP is an average, so nearly half pay more than average and nearly half pay less. Providers who pay more than average, often small practices or rural providers, are at a disadvantage, and further reductions will affect them the most.
MedPAC’s proposals also bring back price negotiation, a failed concept CMS tested in 2006 with the Competitive Acquisition Program (CAP). Under CAP, physicians obtained drugs for Medicare patients from CMS-approved vendors who negotiated with manufacturers. Because of low enrollment, the program died in 2008. Although CMS claims that the issues that prevented CAP from succeeding have been resolved, the transition to negotiated prices would still be very difficult for cancer practices that carry all the risk associated with providing these expensive drugs to patients. Cancer drugs are toxic, requiring special inventory management and safe handling by specially trained personnel—all of which is supposed to be covered by the current ASP plus 6%. The 6% markup is also intended to insulate providers against market conditions—having to purchase a drug at above-average cost, for example.
Other Forces Affecting Reimbursement
In addition to market fluidity, other pressures also are having an impact on drug reimbursement, making financially vulnerable practices even more fragile. The 2% sequestration cut implemented in 2013 essentially reduced ASP plus 6% to ASP plus 4.3%, a significant reduction in the add-on fee needed for handling these toxic pharmaceuticals.
Secondly, wholesale distributors often receive a 1% to 2% prompt-payment discount from the manufacturer that is not passed along to the provider. CMS determines the ASP by taking into account the discount, so this represents yet another strain on the provider.