CMS Drug Cost Reimbursement Experiment

Medicare’s Struggle to Reduce Rx Costs

From the 5/5/2016 edition of the Wall Street Journal, by Stephanie Armour —

An Obama administration proposal to reduce Medicare’s profit incentives to doctors who administer drugs is drawing such intense congressional criticism that some policy analysts question whether it will survive intact.

Dozens of House Republicans are demanding the proposal be withdrawn, and Democrats on the Senate Finance Committee are raising concerns with the Centers for Medicare and Medicaid Services, which administers the program. The pushback is growing in advance of a May 9 deadline for public comments.

Under Part B of Medicare certain drugs can be administered in an outpatient environment, including a doctor’s office. Examples would be infusion drugs that are used in chemotherapies for such conditions as cancer or rheumatoid arthritis. 

For some time Medicare has allowed doctors, or hospitals, to purchase the drugs and then reimburse them at the average price of the drug plus a 6% override. In March Medicare (CMS) proposed reducing the override to 2.5% for certain medications, as a test program.

The uproar from physicians, patient groups, and, of course, the pharmaceutical companies has been immediate and intense. The proposed reduction by CMS were introduced as an idea to control costs in light of the perception that doctors and hospitals were using higher priced medications just to receive higher premiums.

Another idea being discussed within CMS circles, is to base payments for drugs on the effectiveness of a treatment. As you might expect, this has generated significant controversy, most of which has asked where the effectiveness criteria would come from. 

This all happens in an atmosphere of rapidly increasing drug prices, and the introduction of new types of medications, including biologics and custom designed drugs for specific conditions. Moreover, prices for many established drugs have also been increased by manufacturers.

Under Part B, Medicare pays medically necessary costs, including drug costs, after the payment of the annual Part B deductible, at an 80% factor. Medigap plans that cover Part B costs, will pay the 20%. Medicare Advantage plans will have greater out-of-pocket costs for the customer based on the plan design.

With respect to the Part D program under Medicare, the federal government significantly subsidizes the cost of drugs for low income, but also provides premium support for higher income beneficiaries. In addition, the Part D program provides a substantial excess loss platform to help with drugs provided within the catastrophic layer of the Part D program.