(Story updated at 3:44 p.m. ET)
Experts say the cancellation of a pilot program whose goal was to drop drug prices doesn't mean the fight is over, and future efforts should simply take lessons from the experience.
The Obama administration Thursday evening announced it was killing a five-year Medicare initiative that would test new ways of paying for outpatient drugs in an effort to bring those prices down.
Providers, drugmakers and pharmaceutical companies immediately slammed the proposal when it was unveiled in March.
Ted Okon, executive director of the Community Oncology Alliance, which represented one of the specialities that would be most negatively affected, immediately tweeted that the pilot was “the most contrived, absurd experiment on cancer care I have seen.”
Since then, the mandatory program has served as an example for opponents of what's wrong with the Center for Medicare and Medicaid Innovation, which was created by the Affordable Care Act to find ways to reform how healthcare is delivered and paid for. The center itself is in the crosshairs of some Republicans, who say the pilot programs created by the Innovation Center overstep its authority because they require physicians and patients to participate without creating legislation to support the efforts. Providers also said they weren't consulted or asked for input before the model was unveiled.
“The process and scope were the downfall of the model,” said Jennifer Snow, director of health policy for Xcenda, a healthcare consulting firm and subsidiary of AmerisourceBergen Corp., a drug distribution and services company.
In September, more than 170 House Republicans, led by Rep. Tom Price of Georgia, who is now the nominee to head the HHS, wrote to the CMS asking that any payment models not require mandatory participation. They said the agency had overstepped its authority, upsetting the balance between the executive and legislative branches and failing to engage stakeholders.
Had the CMS targeted the model to a smaller group of providers, “the chance of survival would have been higher,” Snow said.
The program, proposed by the CMS Innovation Center, would have piloted new ways to pay for drugs under Medicare Part B in an effort to curb costs and reward better patient outcomes. 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.
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—so a drug with a $100 price tag yields an additional $6, while one with a $1,000 average sales price yields $60. 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. Physicians' groups argued that the program usurped clinical judgement.
The agency proposed dropping the payment from 6% to 2.5% of a drug's average sales price while adding a flat payment of $16.80 per drug a day.
Cancer providers were especially troubled by the proposal. The CMS estimated in the proposed rule that Part B payments to medical oncologists—$1.2 billion in 2014—would decline by 0.7% compared with a 1.3% increase across all specialties.
Politico first reported that a CMS spokesman Thursday said they canceled the program after reading 1,300 public comments, mostly negative.
But experts say that doesn't mean the fight is or should be over.
“Given that pharmaceutical costs continue to grow, there is still broad interest in developing payment policies based on the value of drugs,” said Chuck Shih, senior officer for the Pew Charitable Trusts' specialty drugs research initiative.
Drug manufacturers say the high prices help pay for research and development of new therapies.
President-elect Donald Trump, while not clear about his plans, has said he wants to tackle the issue of high drug prices. Senior Republican staffers Thursday also said it would be a top priority, behind repealing and replacing the ACA.
Gerard Anderson, a professor of health policy and management at Johns Hopkins University, says one way to address drug prices is to hold providers accountable for the results of the drugs they prescribe by incorporating drug utilization in current and future bundle pay models.
Part D, the outpatient prescription drug benefit for anyone in Medicare, could also hold answers.
At around $80 billion annually, the program's spend is four times what's spent in Part B, according to Andrew Ryan, an associate professor of health management and policy at the University of Michigan.
The CMS could also expand pilots, like the oncology-care model, to an array of specialty groups said Mark McClellan, a professor of health policy at Duke University who headed Medicare for two years during the George W. Bush administration.
Oncologists have largely supported an initiative to change the way cancer care is paid for by encouraging better overall treatment. The program, which is being rolled out in two phases, also allows physicians to recoup some savings if they are successful in reducing overall costs.
That could indirectly affect drug prices because fewer prescriptions would be needed, McClellan said. “The model recognizes upfront that drugs are not the only costs that matter and that care can be better if providers have more resources,” he said.
Another idea could be to have Medicare consolidate billing codes for drugs that have similar health effects. Many providers now receive codes based on their average sales price.
“Consolidated billing codes are in many ways a similar concept to bundled payments, which have been broadly accepted by the provider community,” said Pamela Pelizzari, a healthcare consultant with the actuarial firm Milliman.
The solutions will be too late to implement during the remainder of President Barack Obama's tenure.
The CMS' decision leaves a blemish on Obama's now dwindling efforts to reform how the country pays for healthcare and assesses the quality of patient care.
