CMS cancels Part B demo, industry and opponents rejoice

The Obama administration canceled a mandatory five-year Medicare pilot program that would have tested new ways of paying for outpatient drugs.

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. Last year, Medicare spent more than $24 billion on drugs.

Politico first reported that a CMS spokesman said the agency decided to kill the model after reading more than 1,300 public comments, most of them negative. Lawmakers, including House Minority Leader Nancy Pelosi and incoming Senate Minority Leader Chuck Schumer had opposed the model.

“While the proposed Medicare Part B demonstration had admirable goals, our members raised a number of concerns, and we are pleased the Center for Medicare and Medicaid Innovation has decided not to move forward,” Pelosi said in a statement.

Under the current Part B payment 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. For example, a drug with a $100 price tag yields a $6 payment 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.

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 that Part B payments to medical oncologists, which added up to $1.2 billion in 2014, would decline by 0.7% compared with a 1.3% increase across other specialties.

The pharmaceutical industry, oncology groups and lawmakers from both parties lobbied to kill the pilot, saying it risked patients' safety.

“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 Oncology Alliance.

Opponents of the demo were thrilled with the news. “The proposed Part B pricing demo would have severely undermined the quality and availability of care for patients suffering from serious diseases and chronic conditions,” Paul Gileno, founder and president of the U.S. Pain Foundation, a not-for-profit organization funded by Pfizer and GlaxoSmithKline, said in a statement.

This, however, may not be the end of the battle over drug prices. President-elect Donald Trump, while not clear about his plans, has said he wants to tackle the issue.

The CMS' decision leaves a blemish on President Barack Obama's now weakened efforts to reform how the country pays for healthcare and assesses its quality. Republican leaders say repealing and replacing the Affordable Care Act, Obama's signature healthcare reform law, will be a top priority after the inauguration.