WASHINGTON—The Obama administration is proposing a test program to see if lowering reimbursements for drugs administered by some Medicare doctors would prompt them to choose lower-cost, but equally effective, medications.
The development could lead to an overhaul of reimbursements under Medicare Part B, a program that pays about $19 billion a year to providers—and is outlined in a proposed rule issued Tuesday by the Centers for Medicare and Medicaid Services, which runs the program.
The initiative is part of a strategy by the Obama administration and Congressional lawmakers to tackle health-care spending that is driven in part by rising prescription-drug prices, an issue that has loomed in the presidential race and ranks high among public concerns in polls. The administration has sought information on pricing from pharmaceutical companies and has been probing ways to help consumers keep their drug costs in check.
But the proposal is meeting stiff opposition from the pharmaceutical industry and some providers—especially cancer centers where many high-price specialty drugs are used—because of the proposed drop in reimbursement.
“It is inappropriate for CMS to manipulate choice of treatment for cancer patients using heavy-handed reimbursement techniques,” said Dr. Allen Lichter, chief executive officer of the American Society of Clinical Oncology, a professional organization. “Physicians did not create the problem of drug pricing and its solution should not be on their backs.”
About 100 industry and consumer groups are already pressing the administration to withdraw the proposal because they say it would prevent some patients getting medications they need. They called the proposed rule “misguided and ill-considered” according to a letter sent to the Department of Health and Human Services last week in anticipation of the proposal.
“We urge you to ensure that our nation’s oldest and sickest patients continue to be able to access their most appropriate drugs and services,” according to the letter, which was signed by oncology, HIV and urology organizations.
The rule creating the test program could go into effect in two phases after a 60-day comment period, officials said. It would run for five years. Nothing in the proposal would prevent doctors from prescribing treatments they think patients need, officials said Tuesday.
“These models would test how to improve Medicare beneficiaries’ care by aligning incentives to reward value and the most successful patient outcomes,” said Dr. Patrick Conway, deputy administrator for innovation and quality and chief medical officer at CMS.
He said nothing would prevent doctors from administering any drug.
The insurance industry’s main trade group indicated support. “This pilot program is an important start towards ensuring that patients get the best value for their health-care dollars,” said Clare Krusing, a spokeswoman with America’s Health Insurance Plans.
Total drug spending in the U.S. is expected to hit $535 billion in 2018, which is almost 17% of all personal health-care spending, according to a report Tuesday by HHS.
Medicare Part B is a program that reimburses providers who administer prescription drugs in offices and hospital outpatient settings. It is a major component of Medicare, the $600 billion federal health-coverage program for roughly 50 million seniors age 65 and older and the disabled.
The Part B program has seen rising expenses due, in part, to the advent of newer and costlier prescriptions. Analysts have said the program is ripe for an overhaul because its reimbursement system provides an incentive for doctors to select more expensive drugs when cheaper and just as effective alternatives exist.
Generally, under Medicare Part B, doctors are reimbursed the average sale price of a drug plus an additional 6% premium. Critics have said this encourages the use of costlier drugs as doctors get larger reimbursements for using them.
A doctor who administers a $100 cancer drug, for example, would be reimbursed that average sales price plus $6.00. A doctor who administers a $1,000 cancer drug would be reimbursed the average sales price plus a $60 premium.
A November 2015 report by the U.S. Government Accountability Office said the current system has led to concerns that it is creating “incentives for use of higher prices drugs when lower priced alternatives are available.”
Under the proposed rule, the Obama administration would assign providers to groups based on their service areas. Doctors in certain groups would get the average sales price of the drug. They would also get a 2.5% premium instead of the current 6%. And they would get an additional fee of $16.80.
So doctors in the test ZIP codes who use a $100 drug would get the average sales price plus $19. A doctor who selects a more expensive drug at $1,000 would get about $42 plus $1,000. While the doctor who chooses the more expensive drug would still get a larger reimbursement, it would be significantly lower than the doctor would get under the current system. The goal is to reduce the incentive to provide costlier medications.
Phase two of the proposal—which would go into effect no earlier than January 2017—would alter other variables.
Some doctors under the current system and the proposed test would get a higher reimbursement rate if they select a drug that is very effective at treating a condition. They would get a lower rate if they select a drug that is less effective, officials said. Specific drugs involved would be selected based on clinical analysis with external input.
Another test in phase two would examine the impact that patients’ out-of-pocket costs have on the decision to administer drugs. Currently, about 20% of patients on Medicare Part B pay about 20% of the cost of their medications. Cost sharing would be eliminated for some in the test. The administration would examine if that has an effect on the type and cost of drugs doctors and patients chose.
Drug spending in the Medicare Part B program increased from $9.4 billion in 2005 to $18.5 billion in 2014, according to HHS.
Doctors give many drugs in an office setting, including vaccinations, cancer medications, nebulizer treatments, and drugs that are injected or infused, such as specialty medications for arthritis. The pilot test will likely face resistance from cancer doctors who have been concerned about tight margins and financial pressures from higher-price infused or injected drugs. Providers may also feel they are being pressured by the federal government into selecting cheaper drugs they don’t feel are as effective.
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