Prescription drug spending is rising fast and the Obama administration has proposed a plan to test new ways of pricing drugs covered under Medicare part B.
National spending on prescription drugs was about $457 billion last year, nearly 17 percent of overall healthcare spending. Spending on drugs prescribed under Part B was about $20 billion in 2015, up 30 percent from 2007. Total spending on Medicare eats up a huge portion of the federal budget – 15 percent in 2015 – while Medicare Parts A and B together account for about one-quarter of benefit spending.
Medicare Part B covers a range of drugs administered in a physician’s office or hospital outpatient department. These include cancer medications, injectables like antibiotics, and eye care treatments, as well as drugs that treat rheumatoid arthritis and conditions like macular degeneration.
The new rule – announced by the Centers for Medicare and Medicaid Services in March – is designed to test physician and patient incentives with the goal of rewarding positive patient outcomes and driving prescription of the most effective drugs. It emerged from stakeholder meetings convened last fall to discuss how the health care system can encourage drug development while ensuring affordability and access for patients.
The plan is to test six different approaches to pricing Part B drugs that are designed to improve quality of care and spend dollars wisely. The administration says that the current payment model “may encourage the use of higher-price drugs when lower-cost drugs of equivalent effectiveness are available.”
Today, Medicare Part B pays physicians and hospitals the average sales price of a drug, plus a 6 percent add-on. The 6 percent acts as an incentive to administer more expensive drugs – if a medication costs $1,000 the provider gets $60, compared to $6 for a $100 drug. The model being tested will pay 2.5 percent plus $16.80 per drug per day. The change would be budget neutral but in theory reduces the incentive to administer more expensive medications.
Another change discounts or eliminates patient cost-sharing, or the portion of their care that Medicare patients are often required to pay. By decreasing cost-sharing the proposal hopes to improve beneficiaries access and appropriate use of effective drugs.
The law that governs Medicare says public officials should conduct experiments that will help “improve care, increase efficiency and reduce costs.” Still, the New York Times reported that some lawmakers are attacking the proposal, calling it an example of “unelected bureaucrats making decisions behind closed doors.”
Dr. Patrick H. Conway, a deputy administrator of the Centers for Medicare and Medicaid Services, said the government was not infringing on the discretion or authority of doctors. “Physicians and clinicians will make the prescribing decisions,” he said. “Nothing limits the ability of physicians to prescribe the most appropriate medications.”
The proposed rule is nearing the end of a 60-day comment period. It has not been announced how many of the 55 million Medicare beneficiaries would be affected by the proposed rule, but different methods will be tested in different parts of the country.