Reactions to the Centers for Medicare and Medicaid Services’ (CMS) proposed Part B drug reimbursement demonstration project have been both swift and predictable. Under the proposal, reimbursement for drugs covered under Part B would be reduced from average sale price (ASP) +6% (pre-sequester) to ASP +2.5% plus a flat fee of $16.80. CMS would also pursue various value-based purchasing tools as part of the pilot. The objective is “to encourage better care, smarter spending, and healthier people by paying providers for what works.”
Not surprisingly, physician groups and the medical societies to which they belong quickly decried the proposal as being potentially dangerous for patients, saying that it would put certain physicians and patients (in the demonstration ZIP codes) at unfair disadvantages to those in the current system.
Proponents of the plan—mainly insurers and retiree associations—hail the plan as a move toward controlling specialty drug prices, and a step in the right direction for U.S. healthcare.
Most likely, however, both sides are wrong.
Medicare Part B covers prescriptions that are administered in a physician’s office or hospital outpatient department, and to counter the proposal’s detractors, it seems unlikely that oncologists, rheumatologists and other specialists will change their prescribing habits in ways that result in meaningfully worse outcomes for their patients. Possibly the worst case is that specialists will send their patients to hospital outpatient departments, standalone infusion centers or other practices for their infusions, rather than infusing within their practice—all of which will drive higher costs. Practices with multiple locations may benefit from having sites in ZIP codes outside of the demonstration, thus preserving the status quo, but at some inconvenience to the patient. They could also seek to white-bag (have the drug be paid through pharmacy benefit and delivered to their office via specialty pharmacy) so that they bear no direct financial risk. All of this is bad news for patients who may be required to travel far distances, bear financial risk or face delays with product reimbursement approval. Whether such inconveniences and delays lead to danger for patients would need to be closely monitored but may be unlikely.
Turning to the proponents’ claims of helping control drug prices, it’s unclear what dynamics in the first phase of the CMS proposal would actually cause drug prices to drop. When faced with options that are priced near one another—say, $5,000 per administration—specialists are unlikely to drastically change their behaviors, so reducing price would be illogical for the manufacturers. Perhaps price would erode a bit due to increased provider discounts to offset the reimbursement squeeze, but such calculus is clearly unsustainable for the industry to pursue. Let’s take another scenario: deciding between a $500 option and a $5,000 option. Today, in the ASP +6% world, are specialists really choosing the $5,000 option to make $300 instead of $30? Patrick Conway, chief medical officer for the CMS, said,"We've heard from oncologists who feel pressure from their health system to pick higher-cost drugs even when they are not appropriate for a patient." Especially if this is true, what incentive would the higher-cost manufacturer have to lower the price to $500? If the drug price is cut in half to $2,500, the specialist is still much better off ($150 vs. $30), never mind the fact that the manufacturer would need to believe specialists were going to reduce their prescribing by 50% to justify such a cut in the first place. Do we really believe the prescribing of such drugs would drop so precipitously? Are specialists so money-hungry that half of their decisions are driven by drug mark-up?
To be fair to CMS, there could be merit in pursuing some of the value-based purchasing tools, but CMS’ proposal as constructed is likely not the best way—not because the detractors are right, but because it’s unlikely to have a significant impact. If the current problem is that practices are reimbursed more for higher-cost therapies, why would we retain the same reimbursement structure but just lower the percentages involved? Higher-cost therapies will still make practices more money. In the end, this model is unlikely to meaningfully change dynamics around drug pricing or overall spend in categories with significantly lower cost options. Collective feedback from the oncology community, patient advocacy groups and pharmaceutical manufacturers alike should ensure that CMS makes the best decision regarding next steps.