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Alternative Payment Model for Part B Drugs to Be Tested This Year

April 19, 2016:

The Centers for Medicare and Medicaid Services (CMS) announced March 8 that it is exploring new ways to reimburse for drugs under Part B that will promote the use of the most effective medications and reward positive patient outcomes. The agency recognizes that the current payment method sometimes provides incentives for using the most expensive, not the most effective, medications. Medicare Part B paid out $20 billion in 2015 for outpatient drugs administered by physicians and outpatient departments.

All physicians and hospital outpatient departments will be involved in testing some aspect of the model, which will start to be evaluated in the fall of 2016 at the earliest and phased in sometime in 2017.

The alternatives for paying for drugs under Part B fall into two categories: improving incentives for providing the best clinical care, and structuring payment so as to promote positive patient outcomes:

Improving incentives for best clinical care: Currently, Part B payment for drugs administered by physicians and outpatient departments is based on the average sales price of each drug plus 6 percent. This means that very expensive drugs can bring in much more reimbursement above and beyond the cost of the drug.

For instance, a $10 drug would be reimbursed $10 plus 60 cents. For administering a $1,000 drug, however, a physician or hospital could be paid $1,000 plus $60. There may be no more work involved to administer the more expensive drug, and yet the physician’s add-on payment is 100 times greater.

To address this problem, CMS is proposing to pay for medications using a flat fee of $16.80, plus a 2.5 percent add-on fee. Taking the example above, the provider would be reimbursed $10 plus 25 cents, plus $16.80, for the less expensive drug for a total of $27.05. For the $1,000 drug, the provider would be paid $1,000 plus $25, plus $16.80, for a total of $41.80. This makes payment for the more expensive drug less than twice that for the less-expensive option.

Outcomes-based approaches: CMS will be trying out a few ways to promote the best patient outcomes:

  • Discounting or eliminating patient cost-sharing for the most effective or high-value drugs to encourage use
  • Providing feedback on prescribing patterns (such as local and national best practices as compared with the prescriber’s prescribing patterns) and online tools to support decision making
  • Basing pricing on indications; that is, setting payment according to a drug’s clinical effectiveness for the patient’s specific condition
  • Creating reference pricing, or setting a standard payment rate for a group of drugs that are therapeutically similar
  • Enabling risk-sharing agreements between CMS and drug manufacturers based on patient outcomes, which would link patient outcomes to price adjustments





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