CMS' Healthcare Reform Efforts Make Waves

OncologyLive, Vol. 20/No.4, Volume 20, Issue 4

Under the current administration, a policy implemented at the turn of the year could have far-reaching effects on the healthcare reform effort.

Jeffrey Ward, MD

Although some policy efforts on healthcare reform fell by the wayside when the Obama administration left office, the past 2 years under President Donald J. Trump have seen much action in this regard, making it an active time on Capitol Hill for lobbyists representing the oncology industry. The charge into healthcare reform over the past 2 years by the Centers for Medicare and Medicaid (CMS) has been spurred by the Trump administration’s blueprint, American Patients First.1 Many of these initiatives have, in turn, spawned vigorous and vigilant lobbying efforts by oncologists to ensure that any changes are not disruptive to their vision for appropriate and sustainable clinical care.

When 2019 began, oncologists were battling with the Department of Health and Human Services over a plan to remove oncology drugs as one of 6 protected drug classes under Medicare Part D. CMS believes the time has come to remove protections from drugs that cost the public payer far more, on average, than actual market rates. “Typical private market discounts for these drugs are in the 20%-to-30% range, but the average discount across all protected classes in Part D is just 6%,” CMS wrote in a statement about the proposed change.2

Oncologists contend the draft policy change would enable private payers to install more barriers to access, at the expense of patient health and longevity.

Under the current administration, a policy implemented at the turn of the year could have far-reaching effects on the healthcare reform effort (Table). Since January 1, hospitals have been required to disclose their pricing lists. The initial reaction from the public has been that the arcane descriptions attached to these prices are as difficult to understand as hieroglyphics. However, experts believe that, with time, further clarity will be injected into these lists, and improved healthcare competition and pricing will result. The impact on oncology sector pricing remains unclear.

“I work for a hospital, and the cost structure and the way in which hospitals and physicians get paid are completely different than the way they bill,” said Jeffrey C. Ward, MD, a medical oncologist at the Swedish Cancer Institute in Edmonds, Washington. “As a physician, my billing can be whatever I want it to be and almost all of my payments are contractual. What I bill has nothing to do with what I get paid. You see that whenever you look at an explanation of benefits.”

Medicare Part B Physician Fee Schedule

Table. Select Healthcare Reforms Impacting Oncology Under the Trump Administration1-10

Clearly, fresh battle lines have been drawn in 2019, but the past 2 years of the reform process have involved much give-and-take, and some initiatives have been more impactful than others. Some efforts represent reformulated ideas that failed to launch successfully under previous administrations. Below is a summary of the highlights of this interplay, along with commentary from the oncology provider community.One strongly contested CMS initiative in 2018 was an attempt to simplify coding and payment under the Medicare Physician Fee Schedule and Quality Payment Program. The agency sought to consolidate payment levels for evaluation and management (EM) services, a move that oncologists, among other physicians, said would result in underpayment for complex analysis. “It would have valued a case of sniffles—level 2 code—the same as metastatic breast cancer—level 5,” said Ted Okon, MBA, executive director of the Community Oncology Alliance (COA), an association of independent practices. CMS reversed course and preserved the fifth, or highest, level of payment— $211 for patients with the most complex needs—and said it would consolidate the 4 lower tiers of EM into a single payment. So far, for hematology and oncology, the overall result is an estimated 1% reduction in EM payment. This is an improvement from the originally proposed 4% decrease, according to the American Society of Clinical Oncology.3

The removal of the level 5 payment from consolidation was a relief, said Frederick Schnell, MD, COA medical director. The previously planned adjustment would not have covered the cost of meeting new patients with cancer, designing care plans, talking to families about patients’ illness, managing the costs of care, or validating insurance, he said. “It would have forced providers to start cutting corners.”

The fee schedule changes reduce documentation requirements and, in theory, enable physicians to spend more time with patients. However, 1 change that remains in the plan that physicians still oppose is a reduction in payment margins for Medicare Part B—covered outpatient drugs, such as infusion drugs to treat cancer. CMS’ goal is to lower unnecessary spending. Medicare Part B fee-for-service drug spending climbed from $17.6 billion to $28 billion from 2011 to 2016, representing a compound annual growth rate of 9.8%.4 CMS decided that, starting in 2019, a 3% margin on top of the wholesale acquisition cost (WAC) to cover expenses of handling these drugs would replace the former 6% add-on for such payments. This payment reduction applies only to newly approved drugs.5

COA contends that reducing the add-on payment to 3% will, ultimately, amount to a true payment of about 1.35%, owing to sequester cuts and other factors that erode drug payment margins. “CMS’ decision to arbitrarily lower payment for the introduction of new cancer drugs to the WAC plus 1.35% is seriously misplaced,” the group said in a statement.6 Members also contended the move could trigger manufacturer price increases. CMS did not accept these arguments as sufficiently valid to justify retaining the old payment structure.

WAC plus 3% is used as the payment formula for Part B drugs when the average sales price (ASP) is not available. This may be the case when a drug is initially launched. Once a full quarter of ASP manufacturers’ data is available, CMS pays on the basis of the ASP plus 6%. Oncology groups contend that sequestration and other factors reduce the effective payment to ASP plus 4.3%.

In 2016, the Obama administration abandoned a much-opposed proposal to reduce the ASP add-on payment to the ASP plus 2.5%. The oncology community was glad about that, said Schnell. “It would have exacerbated the business pressures on the oncology community. Profit would have been nonexistent. It would have caused an unbelievable amount of stress and probably would have been fatal to a large number of clinics, especially those in hard-to-serve areas.”

Demand for Advanced Practice Models

Many still would like to see the ASP add-on payment reduced or eliminated, according to Ray Page, DO, PhD, a medical oncologist and hematologist at The Center for Cancer and Blood Disorders in Fort Worth, Texas. “There are a lot of people on Capitol Hill who think the ASP needs to go away, that it creates a perverse incentive for doctors to use more expensive drugs,” he said. However, costs of drug delivery, storage, mixing, managing, and disposal, along with the cost of drugs that are wasted or unusable, inevitably push overall expenses above the ASP rate, and that’s why an ample margin is essential, Page said.For 2019, CMS changed the performance standards for practices participating in the Meritbased Incentive Payment System (MIPS), which is a graduated program designed to adjust payment to individual practices according to performance and quality-of-care achievements. This year practices will not be judged on their Medicare Part B drug costs. This change was well received by the oncology community.

However, in 2019, MIPS practices will be subject to positive or negative payment adjustments of as much as 7%, which involves higher financial risk than 2018’s 5% adjustment limits. “For a practice that bills $1,500,000 in Medicare each year, this could determine whether you take home $1,605,000 or $1,395,000 in 2021. That’s a $210,000 difference,” Modernizing Medicine, a medical consultancy, wrote in an update to the MIPS changes.7

340B Drug Pricing Program

Oncology practices have long contended that CMS has not given them viable options for exiting the MIPS plan. Practices are exempt from MIPS requirements if they participate in Advanced Alternative Payment Models (AAPMs), which force practices to adhere to higher standards on performance and financial-risk taking. But there are scant options as yet for AAPM participation, and oncology groups contend that CMS has been slow to approve privatesector— led AAPM designs. Okon said he was told recently by a CMS administrator that the agency intends to make more AAPMs available. “We’ll have to wait and see where this actually goes,” he said.Reform efforts have also focused on the 340B Drug Pricing Program, which uses manufacturer discounts on outpatient drugs under Medicare Part B to incentivize charity care. Rapid expansion of the program as a result of poorly defined standards for participation has resulted in criticism that 340B has fueled hospital growth at the expense of independent clinics that compete for patients. Critics also contend that the benefits of the program are not being passed along to patients who need them. According to a Government Accountability Office report in 2018, covered entities can realize substantial savings that amount to an estimated 20% to 50% off the cost of drugs.8 They were able to purchase these drugs at deep discounts from manufacturers and provide them to patients at prices they decided. CMS would pay the providers the ASP plus 6%. As a result of this policy, the number of covered entities climbed just over 90% between 2013 and 2017, from 20,183 to 38,396, of which 21,554 were hospitals.

One change in 2018 that represented a dramatic shift in payment policy by the Department of Health and Human Services (HHS) was abruptly terminated by the ruling of a Washington, DC-based federal judge. District Court Judge Rudolph Contreras found that HHS had exceeded its statuary authority when it altered the hospital payment formula under the 340B Drug Pricing Program. The policy, inaugurated January 1, 2018, changed the formula for covering certain outpatient drugs from average sales price (ASP) plus 6% to ASP minus 22.5%. A lawsuit filed in 2017 by the American Hospital Association, America’s Essential Hospitals, and the Association of American Medical Colleges disagreed with the methodology for calculating the discount on payments and contended the net result would be a $1.6 billion reduction in payments to hospitals eligible to participate in 340B. Contreras, issued a permanent injunction against the change, ruling that HHS had overstepped its authority by revising statutory policy rather than merely adjusting rates.

In another move designed to spur competition and lower healthcare costs, CMS announced the implementation of a site-neutrality policy for outpatient hospital clinics. Starting in 2019, the federal agency began paying outpatient departments a Physician Fee Schedule—equivalent rate for clinic visit services. CMS contended that Medicare and beneficiaries were paying more for clinic visit services provided in an outpatient setting than a physician office setting. The agency forecast savings of $380 million.

Competitive Acquisition Program

Although Page said this will create more parity for the independent clinics that compete with hospitals, hospital groups contend that CMS has unfairly characterized the clinic visits as “check-ups” and, in simplifying them, has overlooked the higher general overhead costs that hospitals must cover to continue serving patients, many of whom lack coverage and rely on charity care.Concerns about rising drug costs, particularly in relation to lower per-capita drug spending in other industrialized countries, have led the Trump administration and CMS to propose a return to a form of competitive bidding for select drugs based on a system that was tested without success from 2006 to 2008.

The former Competitive Acquisition Program (CAP) included 180 drugs and biologics. Vendors negotiated with manufacturers over prices, which was the key to the plan saving money for Medicare. Vendors had to supply providers with drugs at prices that didn’t exceed what Medicare was already paying for those drugs. However, CAP saw high attrition among participating doctors: 45% in the first year and 53% in the second. Worse, the cost of CAP-acquired drugs exceeded Medicare’s price thresholds.9 The problems were unresolvable, the program was abandoned, and a second attempt in 2015 failed to launch. Few vendors or doctors were interested in participating in the original CAP program, Schnell said. The distributor community thought it was untenable, and the doctors wanted full cycle control of where the drugs were coming from, how they were shipped and handled, and how quickly they were delivered. “CAP was not appealing at all to anyone I talked to,” he said.

The new iteration would differ from the original in several ways. Physician participation would be mandatory this time and vendors would be paid based not on their competitive bids but according to international reference pricing. Prices under the new CAP would be based on lower average drug costs in other countries. Instead of 180 drugs on the formulary, there would be approximately 32. And whereas specialty pharmacies were the only eligible vendors under the old program, the new program would allow physicians, wholesalers, distributors, and group purchasing organizations to participate as well.10

Program testing would occur in select areas, and oncologists might not have any choice about participating. “I have a large practice with 10 locations and different zip codes. What happens if one of my zip codes is part of the CAP program and one is not?” Page said.

COA also is leery of the plan. The proposed system would fundamentally change how patients with cancer receive their chemotherapy and other drugs at the point of care, Okon said. It would take control over medication ordering away from the doctor, which can affect scheduling of treatment, and introduce potential delays and medication errors, he said. Payment structure also would change. Instead of receiving the ASP plus 4.3% for ordering and delivering drugs, physicians will receive a fee for drug delivery, he said.

The program puts the vendors and distributors at greater financial risk, said Page. “They’re purchasing the drugs. They negotiate the insurance deals. They’re the ones who have to get paid. That translates to a lot of financial risk, and they don’t have the infrastructure to manage that.”

According to a CMS proposal, the plan would initiate in spring 2020 as a 5-year test project. The goal is to investigate whether private-sector competition will decrease drug prices and bring prices into alignment with international rates, while also improving quality of care and beneficiary access. CMS estimates that by using the international pricing index, savings would amount to around 30% for selected drugs.

Although prices for drugs are generally higher in the United States than other industrialized countries, CMS may have difficulty trying to achieve parity with international pricing models, Okon said. “Drug prices are too high, and it’s a problem. But I don’t know how you peg US prices against those in countries with socialized medicine.” CMS is currently soliciting public comments on the options and may issue a proposed ruling in spring 2019.


  1. American patients first: the Trump administration blueprint to lower drug prices and reduce out-of-pocket costs. HHS website. Published May 2018. Accessed January 31, 2019.
  2. Azar A, Verma S, CMS. Proposed changes to lower drug prices in Medicare Advantage and Part D. CMS website. Published November 26, 2018. Accessed January 30, 2019.
  3. 2019 Physician Fee Schedule and Quality Payment Program final rule released [news release]. Alexandria, VA: American Society of Clinical Oncology; November 2, 2018.
  4. ANPRM international pricing index model for Medicare Part B drugs. CMS website. Published October 25, 2018. Accessed January 30, 2019.
  5. Final policy, payment, and quality provisions changes to the Medicare Physician Fee Schedule for calendar year 2019. CMS website. Published November 1, 2018. Accessed January 30, 2019.
  6. Community Oncology Alliance largely commends CMS on final Physician Fee Schedule rule. COA website. Published November 2, 2018. Accessed January 30, 2019.
  7. Collard J. MIPS 2019: what you need to know about the quality payment program. Modernizing Medicine website. Published and updated December 26, 2018. Accessed January 30, 2019.
  8. Drug Discount Program: federal oversight of compliance at 340B contract pharmacies needs improvement. US Government Accountability Office website. Published June 2018. Accessed January 30, 2019.
  9. Martin K, Sharp J. Old lessons for the new Medicare Part B drug payment model. The Commonwealth Fund website. Published November 26, 2018. Accessed January 30, 2019.
  10. ANPRM international pricing index model for Medicare Part B drugs. CMS website. Published October 25, 2018. Accessed January 30, 2019.