The Medicare Payment Advisory Commission held a meeting on Part B drug payment policy issues. The meeting focused on the way Medicare pays for most Part B covered drugs that are administered in physician offices and hospital outpatient departments based on the average sales price (ASP) plus six percent. Medicare also pays dispensing and supplying fees to inhalation drug suppliers and pharmacies for certain Part B drugs.
The Commission discussed whether or not there is a better way to structure the add-on payment to ASP; whether there are payment policies that could be considered to promote more price competition among Part B drugs; and whether changes should be made to the dispensing and supplying fees.
MedPAC Chairman Glenn Hackbarth, JD, MA, made a draft recommendation that the Secretary should reduce the Medicare Part B dispensing and supplying fees to match rates of similar payers. At the end of the discussion, Chairman Hackbarth asked if any commissioners took issue with the recommendation, and no commissioners spoke up.
The meeting was essentially split into two parts: the staff recommendations and the commissioner discussion.
Staff Recommendations
The staff didn’t make any formal recommendations, but instead discussed general policy options to encourage reduced Medicare Part B drug spending. Staff also presented new data to the Commission indicating that for roughly 23 out of 34 drugs, 75% of providers were not bale to obtain the drugs for less than ASP plus two percent. A policy option to restructure the add-on payment should include reducing the add-on to three and a half percent while paying a fixed payment of $5 per drug, per day.
As far as policy ideas to reduce the payment amount for the underlying medication, staff brought up three policies: an ASP inflation cap, consolidated billing codes, and a restructuring of the competitive acquisition program (CAP). The CAP was an older model that originally ran between 2006 and 2008. There is currently no limit on how much the payment rate for an individual drug can increase over time, and several drugs had an ASP increase of five percent or more over just the last year. Staff noted that a cap on the rate of price increase may be effective in rebate form, similar to the Medicaid program, where manufacturers pay a rebate when ASP growth exceeds an inflation benchmark. Such an idea could protect the program against dramatic and quick price increases.
Consolidated billing codes would help to promote competition, since currently, single-source drugs and biologics get their own billing codes, which does not promote competition. This proposal is inline with the Commission’s prior holdings that the Medicare program should pay similar rates for similar care.
Under the CAP program, vendors can purchase drugs directly from the manufacturer and supply them to the physicians. The vendor would then be reimbursed by Medicare for the drugs, and Medicare would also pay the physicians a fee to administer the drug. The idea behind a program like this is to take physicians out of the business of purchasing drugs. Previously, this program did not work because of low doctor enrollment and limited vendor leverage, but with a few updates and revisions, this program may be more successful the second time around. Some potential revisions include ideas like offering shared savings and using a stock replacement model for drugs, instead of a preorder model.
Commissioner Discussion
Commissioner Kathy Buto was concerned about how an ASP inflation cap would actually work in practice. She was concerned that the beneficiary’s cost-sharing would be higher because a potential rebate would go to Medicare, or concerned that Medicare would not collect a rebate but instead set a payment rate limit. In the second scenario, the beneficiary’s cost-sharing would actually be lower because it would be based on the capped price. Staff agreed and mentioned that under the first scenario, overall Part B premiums would go down due program savings, and under the second scenario, individual cost sharing would go down, dependent upon the drugs the beneficiary was using.
Commission Jack Hoadley spoke up and believed that cost savings should be going directly to the beneficiaries instead of spreading overall savings around through lower premiums. Commission Bill Hall also made the point that a limit on price increases doesn’t do much to prevent a high launch price, and that mandatory rebates actually encourage that kind of behavior, because they know the drug will be discounted for many beneficiaries.
When the Commissioners discussed consolidated billings codes, Hoadley did like the recommendations but was unsure as to whether or not he could trust it would result in biosimilars savings. Commissioner Buto was even more skeptical, noting a potential lack of opportunity to appeal a denial for a higher cost drug, which would potentially leave the beneficiary on the hook for the remainder of the cost. Commissioner Katherine Baicker, on the other hand, did like the idea, because it focuses on the highest value care that the patient truly needs; and Commissioner Warner Thomas also expressed his support for the idea, saying that the policy “makes a lot of sense.”
As expected, the CAP program drew many qualms. Commissioner Hoadley wasn’t sure if the program was “worth it,” and Commissioner Thomas referred to implementation as a “challenge.” Commissioner Hall mentioned several specific concerns, especially relating to practice management issues with billing, inventory, and moving from a fixed reimbursement for drugs to something contingent on savings. He also expressed concern that such a voluntary program may not give an accurate snapshot of its efficacy because more than likely it would only be well-situated providers who participate.