Medicare To Experiment With Tying Drug Costs to Effectiveness

Medicare To Experiment With Tying Drug Costs to Effectiveness
March 16 01:00 2016

Aetna and Cigna inked deals last month with drug maker Novartis that offer the insurers rebates tied to how well a pricey new heart failure drug works to cut hospitalizations and deaths. If the $4,500-a-year drug meets targets, the rebate goes down. Doesn’t work so well? The insurers get a bigger payment.

In another approach, pharmacy benefit firm Express Scripts this year began paying drug makers a special negotiated rate for some cancer drugs. The goal is to reward the use of medicines that are most effective for certain cancers.

Dubbed “value-based pricing,” these are the kind of private-sector efforts the Obama administration hopes to borrow to rein in drug prices for Medicare.

The results could lead to a profound shift in how the Centers for Medicare & Medicaid Services spends $20 billion a year for drugs under Part B, which are those given through doctors’ offices and hospital outpatient centers. Many cancer treatments are provided that way, as are some treatments for rheumatoid arthritis, macular degeneration and other medical conditions.

Under a proposed rule, different methods would be tried in selected geographic areas over a five-year test period. Some of these experiments would begin this year, with others added in 2017. The proposal faces two months of public comment.

“The goal is to test whether alternative approaches will lead to better value,” said Patrick Conway, chief medical officer for CMS, in announcing the proposal March 8.

“There is no perfect payment system, they all have upsides and downsides,” said Dan Mendelson of consulting firm Avalere Health, who lauded Medicare for considering new ways to pay even as he cautioned that it must be done carefully. “What we don’t want to do is create a world where doctors only prescribe the cheapest stuff even if not in the interest of the patient.”

Here are four concepts the government is investigating:

Cut add-on fees for doctors and outpatient centers.

Many drugs covered under Medicare Part B are first purchased by a physician office or outpatient center, then dispensed to patients. Once billed, Medicare pays the health care provider the average sales price plus 6 percent for costs associated with the purchase and storage of the medications. For example, a doctor or clinic would receive an add-on fee of $6 when a $100 drug is purchased, or $300 for a $5,000 treatment.

In the private sector, that practice – called “buy and bill” – is being reduced.

Instead, specialty pharmacies, often connected with pharmacy benefit management companies, purchase the drugs and deliver them to doctors’ offices. The management companies, paid by insurers for their services, negotiate prices with drug makers.

But the buy-and-bill approach still dominates Medicare Part B.

Oncology specialists and other proponents say add-on fees are an important revenue source needed to keep such centers open. But critics fear they encourage use of higher-cost drugs when equally effective products could be had for less. They also say the fees reward larger practices and centers that buy drugs at advantageous prices.

To counter that possibility, CMS would change the current reimbursement formula, cutting the add-on portion to 2.5 percent of the average sales price.

Recent industry surveys show that larger practices have resisted moving away from buy and bill. Smaller ones with less bargaining clout favor that. Drug makers and some physician specialty groups oppose this part of Medicare’s proposal, but patient advocacy groups express mild support mixed with caution…

Read full story at NPR
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