Medicare's first step in reining in the skyrocketing cost of specialty drugs deserves support—something it has not received from hospitals, doctors, politicians or, of course, the pharmaceutical industry, which benefits the most from the status quo.
In March, the CMS proposed changing reimbursement for drugs delivered in a physician's office or hospital outpatient facility from the average sales price plus 6% to ASP plus 2.5%. The agency added on a flat fee of $16.80 per drug per day to help cover associated costs of administration (physician and facility fees are separate).
Physicians, especially oncologists, have led the charge against the change. They claim it will destroy small practices that depend on the mark-ups and will wind up shifting care to more expensive hospital outpatient settings.
The American Hospital Association, for its part, commented “there is no convincing evidence that physicians who practice in hospital out¬patient department settings consider profitability over clinical effectiveness when deciding which drugs to prescribe or order. It is clear that hospitals are inappropriate for inclusion in this model.”
Fourteen Republican senators and a dozen Democrats in separate letters to acting CMS Administrator Andy Slavitt attacked various aspects of the proposal. The Community Oncology Alliance, which represents independent practices, is threatening to file suit if the CMS adopts the rule.
The reaction brings to mind an old saying from Upton Sinclair, the muckraking author of The Jungle. “It is difficult to get a man to understand something, when his salary depends on his not understanding it.”
A Medicare Payment Advisory Commission report released this month detailed the perverse incentives inherent in the current reimbursement scheme. It's all about the 6%: Prescribe a $10,000 drug and you get $600 for your practice. Prescribe a $1,000 drug that does the same thing and you get $60.
All physicians should prescribe the best medicine regardless of cost when there is clear clinical evidence that one regimen is superior to another. But in many areas of medicine, especially in oncology, clear evidence of superiority is in short supply or trials have shown that two regimens are comparable.
When that's the case, the argument that financial incentives don't play a role in prescribing patterns simply isn't credible. A study in last week's JAMA Internal Medicine found that physicians were influenced by as little as a free lunch delivered by the drug industry sales representatives. The difference between $600 and $60 is a lot more than the cost of a large pizza.
It's important to note that in trying to reduce this disincentive for assessing value when prescribing, the CMS did nothing to address the underlying problem: the cost of the drugs themselves. Drug spending has soared at double-digit rates the past two years, largely because of the cost of specialty drugs, often delivered in a medical facility. The Medicare trustees report released last week projects no change over the next decade: a nearly 9% average annual increase in the cost of drugs.
It is hurting patients as well as taxpayers. Medicare, which now pays for a third of all prescription drugs, paid nearly $21 billion for Part B drugs in 2014, with 55% of that going for anti-cancer drugs. Patients picked up $4 billion of the total, an especially heavy burden for the more than half-million elderly Americans who undergo cancer treatment every year.
The MedPAC report outlined some promising approaches to getting at the core problem of high drug prices. Medicare could link payments to patient outcomes, which is already being tried by private insurers. The agency could give higher markups to clinicians who stick to scientifically validated clinical pathways when they have been shown to improve quality and reduce costs. It could move to bundled payments for an entire episode of care.
But if the CMS isn't allowed to proceed with its Part B proposal, which limits just one disincentive to a more value-based purchasing approach, there's little hope that the agency will get around to tackling the bigger problem: the sky-high price of the drugs themselves.
