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Medicare to Test New Payment Approaches for Prescription Drugs

Current reimbursement encourages doctors to prescribe higher-priced medications

Medicare plans to test new ways to pay for prescription drugs given in doctors’ offices and hospital outpatient centers, according to a report from Kaiser Health News. Under a two-part proposal, regulators aim to reduce what some economists and policy experts say are financial incentives for doctors to choose higher-cost medications even when less-expensive drugs may be equally or more effective.

The targeted drugs would generally be intravenous medications, such as many cancer treatments; injectable drugs, including some antibiotics; and certain eye treatments. Because these drugs are administered at a medical facility, they are paid for by Medicare’s Part B program, which covers medical outpatient services. The proposal would not affect prescriptions that Medicare beneficiaries buy through pharmacies, which are covered under Medicare’s Part D program or are paid for by the consumer.

Currently, Medicare Part B pays the average sales price of the drug plus 6%. Under the proposal, which will start later this year, doctors and hospital outpatient centers would get the average price plus 2.5%, along with a flat fee of $16.80 per drug per day.

In the proposal’s second phase, set to start in 2017, Medicare would test ideas now being tried in the private sector, from varying payments based on how effective the drug is for a particular condition to decreasing or even eliminating the copayment made by patients for some drugs deemed high-value medications.

The prosed rule is likely to draw opposition from the pharmaceutical industry and oncologists, who have criticized similar proposals from policy experts and from the Medicare Payment Advisory Commission (MedPAC), which provides guidance to Congress.

“Proposing sweeping changes to Medicare Part B drug reimbursement without thoughtful consideration and stakeholder input is not the right approach and puts Medicare patients who rely on these medicines at risk,” Allyson Funk, a spokeswoman for the Pharmaceutical Research and Manufacturers of America, said in an emailed statement.

Changing the way Part B drugs are reimbursed was examined by MedPAC in a 2015 report. The commission said that the current reimbursement method of adding 6% to the average sales price could encourage the use of higher-cost drugs when lower-cost, equally effective treatments are available.

In its report, MedPAC modeled a similar proposal to reduce or eliminate the 6% additional payment. It found that doing so might reduce the incentive for doctors to prescribe higher-cost drugs when other alternatives exist, reducing spending for Medicare and copayments for patients. But it could also increase spending if doctors overused less-expensive drugs or if it prompted pharmaceutical makers to raise their prices.

Sources: Kaiser Health News; March 9, 2016; and Federal Register; March 11, 2016.

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