Does CMS' Part B drug proposal usurp clinical judgment?

Medicare's plans to overhaul the way it reimburses doctors and hospitals for the more than $20 billion worth of outpatient drugs they administer each year has sharply divided the provider community. The fault lines roughly align with the stakes in the status quo.

The five-year pilot is intended to test the effectiveness of strategies that remove the profit motive from using more expensive drugs over cheaper alternatives.

Although some physicians would actually end up with higher payments, the plan would deliver a blow to those in a handful of specialties, particularly oncologists, ophthalmologists and rheumatologists, who earn substantial shares of their revenue from Medicare's longstanding method of paying them a drug's average sales price, or ASP, plus 6%.

“It's basic economics, if you look at oncology practices, the majority of the revenue is coming from drug sales,” said Neeraj Sood, director of research at the Schaeffer Center for Health Policy and Economics at the University of Southern California. “Doctors are human. The fact is, this model changes how much money they'll make.”

The first change that the Center for Medicare and Medicaid Innovation would test under the pilot would be to pay 2.5%, plus a flat fee of $16.80 (instead of 6%) on top of the ASP. That means reimbursement would go up for lower-priced drugs and down for expensive drugs.

The CMS estimated in the proposed rule (PDF) that Part B payments to medical oncologists—$1.2 billion in 2014, including the acquisition costs—would decline by 0.7%, compared with a 1.3% increase across all specialties.

The pharmaceutical industry, oncology groups and Republican lawmakers quickly and harshly criticized the proposal as inappropriately experimenting with patients' medical treatments.

“This is about the government inserting itself and stating that physicians are not correctly treating patients and that it knows better,” said Ted Okon, executive director of the Community Cancer Alliance. “That's a very slippery slope in terms who is controlling medical care.”

Anticipating that criticism while announcing the plan, CMS Deputy Administrator Dr. Patrick Conway said “nothing in this proposed payment model will prevent the doctor from prescribing the exact treatment they think their patients needs.”

Providers in certain geographic areas of the U.S. would continue to get the 6%, however, so the government can measure the effect of the policy on prescribing patterns.

“The model could ultimately result in seniors' receiving different standards of care based solely on where they live in the country,” House Ways and Means Committee Chairman Kevin Brady (R-Texas), House Energy and Commerce Committee Chairman Fred Upton (R-Mich.), and Senate Finance Committee Chairman Orrin Hatch (R-Utah) said in a joint statement.

The day after unveiling the proposal and getting blasted with criticism, the CMS sent reporters a list of enthusiastic quotes from clinicians, along with their e-mail addresses.

The plan, which draws from work by Medicare Payment Advisory Commission, academic studies and models already adopted by private payers, was widely praised by policy experts who have long argued the Part B payment structure delivers perverse incentives.

“I would argue that there really isn't an argument to keep things as they are now,” said Maura Calsyn, director of health policy at the Center for American Progress, a liberal think tank. “The ASP plus 6% is an incentive to prescribe more specialty drugs, which are more expensive.”

Family practice physicians, who generally administer cheaper drugs than their peers in oncology, would see their Part B drug payments rise nearly 44%, the CMS estimates—although that revenue represents a much smaller share of their overall revenue.

Dr. Robert Wergin, a rural family practice physician at the Milford (Neb.) Family Medical Center and chair of the American Academy of Family Physicians, said primary-care providers are more sensitive to their patients' 20% cost-sharing obligations. “This model is about better patient care and less about financial margins,” Wergin said.

Hospital groups so far have offered only tentative feedback on the proposal. MedPAC and HHS' Office of Inspector General have pointed out that the growing number of hospitals in the federal 340B drug discount program do well under the current structure because they get the same reimbursement even though their acquisition costs for outpatient drugs are lower.

“We agree in principle to reducing the cost-sharing burden on patients and promoting evidence-based prescribing,” said Dr. Bruce Siegel, CEO of the trade group America's Essential Hospitals. “But we caution against fundamentally altering current payment practices until we fully understand the impact of these changes on patient access to care.”

As Medicare has been moving away fee for service to value-based payment models, some experts have found it surprising that the CMS hasn't previously targeted drug spending.

Under a second phase of the pilot, the CMS intends to test a “menu of value-based purchasing options,” again trying different policies in different regions.

One idea on that menu is to enter into voluntary agreements with drug manufacturers to link patient outcomes with price adjustments, which would give Medicare some say in determining the prices it pays for drugs.

“This is major move that may save hundreds of millions,” said Dr. Bill Bithoney, chief physician officer at consulting firm BDO's Center for Healthcare Excellence & Innovation.

Andrew Ryan, an associate professor of health management and policy at the University of Michigan, said he was especially pleased with inclusion of reference pricing, or setting a benchmark price for a group of therapeutically similar drugs.

“I think in a lot of ways, drugs have been left behind in the value-based payment initiatives,” Ryan said.