On March 8, 2016, the Centers for Medicare and Medicaid Services (CMS) proposed to test a new Medicare Part B reimbursement model in a “lottery” of sorts, with the goal of delivering more value-driven care. The current incentives for prescribing a Part B drug allow the provider to make a margin of 6% of the average selling price (ASP) of the therapy. For an oncology drug that is infused weekly and costs $10,000 per month, that means $600 of margin per month for the provider. And the more expensive the drug, the higher the margin amount. (Not surprisingly, cancer drugs made up 42.1% of all Medicare Part B spend in 2014, according to CMS.) Under the new model being piloted by CMS, practices that “win” the lottery will now be reimbursed at ASP plus 2.5% and a flat rate payment of $16.80 per treatment, according to the Department of Health and Human Services. So that same $10,000 drug will now only yield $317.20 to the provider—about half of the $600 that they make today. After sequestration, that amount is reduced even further to $152.12.
We are left with two key questions: Will practices chosen in this lottery do anything differently? If so, what? Here are two possible scenarios:
- Change in treatment choice: It’s possible that oncologists will become more mindful of drug cost, thereby altering their Part B drug choice as compared to pre-program selection. Alternatively, we may see a rise in the use of oral therapeutics, which are reimbursed through Medicare Part D, because they would not present the same financial limitations to selected practices as would infusions in this new program.
- Change in treatment location: Oncologists may choose to refer patients to other affiliated practices that haven’t been selected in this lottery. For example, a major oncology group that overlaps with various primary care service areas may start referring patients to non-participating satellite locations in order to continue receiving the same reimbursement for the chosen treatment. This could mean longer travel times for already sick patients.
What’s the implication for pharmaceutical companies when providers are selected in this lottery?
First, they need to empathize with the situation at hand for providers. This represents a major change for those selected. Second, companies need to anticipate that the locations at which their drugs are administered to patients could change. Furthermore, this program is yet another reason why companies will need to provide a convincing value story at a provider level around why a higher-cost treatment may still be the best treatment decision for particular patients.