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New Medicare pay system aimed at lowering drug costs

The major test of new payment methods includes a significant drop in drug add-on fees Medicare pays to doctors and hospitals.
By Stephen Feller   |   March 9, 2016 at 10:30 AM

WASHINGTON, March 9 (UPI) -- Medicare officials have proposed new drug reimbursements for doctors, looking to test payment methods that could bring down costs over time while improving the quality of care for patients.

The Centers for Medicare and Medicaid Services announced plans to test several new methods of payment over the next five years linking them to patient outcomes, with the hope of steering doctors toward using the most effective drugs regardless of price.

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While representatives of the pharmaceutical industry immediately criticized the proposed methods, Patrick Conway, chief medical officer for CMS, said he has been told by doctors they are under pressure to pick more expensive drugs for a bigger payout, reported the Washington Post.

"These models would test how to improve Medicare beneficiaries' care by aligning incentives to reward value and the most successful patient outcomes," Conway said in a press release. "The choice of medications for beneficiaries should be driven by the best available evidence, the unique needs of the patient, and what best promotes high quality care."

In the current system, Medicare Part B pays physicians and hospitals the average sales price of a drug, plus a 6 percent add-on. CMS is proposing to knock the add-on down to 2.5 percent, but adding a flat fee of $16.80 per drug per day, to test whether prescriptions change and how quality and value change.

CMS also plans to test methods of determining the most effective drugs for conditions, collecting data on prescriptions and use, local and national prescription patterns and the clinical effectiveness of treatments. The long-term goal is to pay more for treatments associated with high levels of success for certain conditions, but pay less for less effective or long-term drugs.

In addition to finding the most effective drug treatments at the best cost, CMS says it is also considering a test of standard payment rates for groups of therapeutically similar drugs and entering into voluntary agreements with drug companies linking patient outcomes to prices for patients with Medicare.

The Pharmaceutical Research and Manufacturers of America criticized the plan, suggesting the tests are unnecessary because of the small share of Medicare Part B spending, claiming price growth for the drugs is below overall medical inflation.

"The current Medicare Part B drug payment methodology is an effective, market-based pricing mechanism that works to control costs," the organization said in a press release. "Proposing sweeping changes to Medicare Part B drug reimbursement without thoughtful consideration and stakeholder input is not the right approach and puts Medicare patients who rely on these medicines at risk."

In 2015, Medicare Part B spent about $20 billion on outpatient drugs. CMS said its proposals are not based on saving money -- the change to add-on fees is described as budget neutral -- but the long-term result should lower costs as a result of what the agency says is a pursuit of best care for Medicare beneficiaries.

"These proposals would allow us to test different ways to help Medicare beneficiaries get the right medications and right care while supporting physicians in the process," said Andy Slavitt, acting administrator for CMS. "This is consistent with our focus on testing value-based care models like we have been doing with physicians and hospitals in affordable care organizations. Models like this one can help doctors and other clinicians do what they do best: choose the medicine and treatment that keeps their patients healthy."

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