MedPAC's Latest Part B Proposals Would Raise the Cost of Care

Oncology Business News®, August 2017,

The Medicare Payment Advisory Commission (MedPAC) voted to approve several proposals aimed at decreasing Medicare spending for Part B physician-administered drugs.

Ben Jones

Proposals Blend Concepts From 2 Highly Scrutinized Programs

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.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.

Other Forces Affecting Reimbursement

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.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.

Why Now?

Oncology Pathways: a Viable Solution for Maximizing Value

Finally, CMS calculates the ASP of a drug once every 6 months. While drug prices are continually rising, the provider may be reimbursed on an ASP as much as 6 months out of date.In addition to the red flags already mentioned, the timing of MedPAC’s proposals is concerning. The oncology community just spent more than 2 years adapting to the Oncology Care Model (OCM), which has been in operation for a year. The value associated with the OCM is just starting to be realized, so it seems dangerous to add something else to the mix in the hopes of saving additional money.MedPAC’s belief that current policies provide incentives to use higher-priced drugs doesn’t take into account proven tools that create transparency around care decisions and drug choices. Clinical pathways in oncology improve quality and value by highlighting evidence-based treatment options and their costs, reducing variability in care. Technology tools, which can call physician attention to high-value options, now also exist in ways that enhance the treatment selection process. Where multiple therapies may be similar in efficacies and toxicities, cost can come into play, and the physician can select the option offering the most value to both patients and payers. Pathways adoption is growing rapidly, with approximately 60 individual US health insurance plans currently implementing oncology pathways.4

Save a Penny, Lose a Dollar

Stakeholders are recognizing the vast potential of pathways and the importance of having transparent, physician-led, evidence-based content at the center of these new models. In 2012, The US Oncology Network, McKesson Specialty Health, and the National Comprehensive Cancer Network (NCCN) began a long-term collaboration to develop Value Pathways powered by NCCN, and since then, these pathways have been adopted by more than 1500 providers and, through workflow-integrated technology, have informed over 200,000 treatment decisions. Other organizations are developing their own versions. The value of these, and even broader clinical guidelines, is also already recognized by CMS—as an integral requirement of the OCM. As more stakeholders in oncology become comfortable with the contribution clinical pathways can make in supporting high-quality, high-value care, the role of this important tool in cancer care will only increase, hopefully appeasing CMS by demonstrating significant cost savings, quality care, and optimal outcomes.Unfortunately, financial pressures are taking a heavy toll on community practices, and if implemented, the MedPAC proposals may be the last straw for many of them. Over the past 5 years, independent practices have shut their doors at an alarming rate, creating serious access issues for patients while driving more cancer care into the much more expensive hospital setting. For example, CMS pays physician-owned practices roughly $140 for an hour of chemotherapy infusion, but it pays roughly $280 for the same service using the same drugs administered in a hospital setting—double the cost. Our own analysis of a typical community cancer center versus a hospital outpatient setting found hospitals are paid 91% more than cancer centers, simply because of different fee schedules. In addition, care costs are higher in hospitals, and consequently, patient co-pays also are higher, putting additional stress on patients.

The huge profit potential for hospitals in oncology is motivating them to acquire physician-owned practices that can no longer remain viable on their own. Just by changing the sign on the door, hospitals can often charge Medicare double what the community cancer center can. Therefore, it makes no sense to enact policies that could force even more community centers to close. In an ill-advised attempt to save money, the MedPAC proposals will contribute to this trend by fueling dramatic increases in Medicare Part B spending and pushing more patients into more-expensive hospital care.


  1. Dickson V. Latest attempt to curb Medicare Part B drug costs panned by doctors and drugmakers. Modern Healthcare. 2017. article/20170406/NEWS/170409948. Accessed June 19, 2017.
  2. Pear R. Proposal to reduce Medicare drug payments is widely criticized. New York Times. May 22, 2016. Accessed June 19, 2017.
  3. 316 of nation’s leading health care and patient advocacy groups implore Congress to oppose Medicare’s experiment [news release]. Washington, DC: Community Oncology Alliance via PR Newswire. March 17, 2016. prnewswire. com/news-releases/316-of-nations-leading-health-care-and-patient-advocacygroups-implore-congress-to-oppose-medicares-experiment-300237848.html. Accessed June 19, 2017.
  4. Zon R. ASCO policy statement on clinical pathways in oncology: why now? Am J Manag Care. 2016. april-2016/ASCO-Policy-Statement-on-Clinical-Pathways-in-Oncology-Why-Now. Accessed June 19, 2017.