CMS wants to overhaul Part B drug payments. Oncologists call the plan 'absurd'

The Obama administration unveiled a five-year Medicare initiative Tuesday that would test new ways of paying for outpatient drugs. The pharmaceutical industry and some provider groups quickly attacked it as an irresponsible experiment.

The mandatory program, proposed by the CMS Innovation Center would explore whether alternative models for covering drugs under Medicare Part B would curb costs and reward better patient outcomes.

Ted Okon, executive director of the Community Cancer Alliance, tweeted soon after the announcement that the pilot “is the most contrived, absurd experiment on cancer care I have seen.”

Under the current Part B reimbursement model for drugs administered by infusion or injection in doctors offices and hospital outpatient departments, Medicare pays 6% on top of the average sales price of the medication. That means providers are paid more when they choose more expensive medications—a drug with a $100 ASP yields an additional $10 while one with $1,000 ASP yields $100. Critics say the model provides a clear incentive for physicians to go with a pricier drug even when there's no real benefit over cheaper alternatives.

The new Innovation Center initiative was inspired by a Medicare Payment Advisory Commission (MedPAC) report to Congress last summer that outlined a troubling trend in Part B drug spending, according to Dr. Patrick Conway, the CMS' deputy administrator for innovation and quality.

“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,” Conway said in a news release.

The first phase of the program, beginning in late 2016, would test how prescribing patterns are affected by knocking down the add-on to 2.5% and substituting a flat payment of $16.80 per drug per day.

Later—no sooner than the start of 2017—the agency intends to test a “menu of value-based purchasing options” culled from a review of strategies used by private health plans, hospitals and pharmacy benefit managers.

Not all providers and suppliers would be subject to each strategy the government is testing. Beginning at least 60 days after the proposal is finalized, the CMS would divvy them up by primary-care service areas to create control groups and study groups.

The value-based strategies that would be tested are:

• Decreasing or eliminating cost-sharing under Part B to improve beneficiaries' access to and appropriate use of effective drugs.
• Creating evidence-based, clinical-decision support tools as a resource for providers and suppliers focused on safe and appropriate use for selected drugs and indications.
• Varying payment for a drug based on its clinical effectiveness for different indications.
• Testing the practice of setting a standard payment rate—a benchmark—for a group of therapeutically similar drugs.
• Entering into voluntary agreements with drug manufacturers to link patient outcomes with price adjustments.

Prescription drug spending in the U.S. totaled about $457 billion in 2015, or 16.7% of overall health spending, according to the CMS (PDF). In 2015, Medicare Part B spent $20 billion on outpatient drugs administered by physicians and hospital outpatient departments.

The Pharmaceutical Research and Manufacturers Association said in a statement Tuesday that Medicare's aggressive moves toward value-based payments under accountable care and other models are already giving providers incentives to hold down Part B drug costs. “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,” PhRMA spokeswoman Allyson Funk said in the statement.

The American Society of Clinical Oncology lashed out at the Innovation Center's intent to “modify drug reimbursement based on Zip codes,” calling it “inappropriate for CMS to manipulate choice of treatment for cancer patients using heavy-handed reimbursement techniques.” ASCO added that physicians “did not create the problem of drug pricing and its solution should not be on their backs.”

The deadline for comments on the proposed rule is May 9.