Strong Opposition to Change in Part B Drug Reimbursements

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The Center for Medicare and Medicaid Services (CMS) recently proposed a pilot project to test alternative payment methods for drugs under Medicare Part B. These are the drugs administered in hospital outpatient clinics and physicians’ offices.

The pilot project would take place in limited areas. At issue is the perceived incentive for doctors to administer high-price drugs because reimbursement is a function of a drug’s cost. Currently, Medicare reimburses physicians and hospital outpatient clinics 106% of the average sales price of drugs. Say an oncology drug has an average price of $1,000.
Medicare would pay $1060 for its use. On the other hand, say a doctor used a cheap, older oncology drug that only cost $100, Medicare would reimburse $106. Policymakers view the additional $54 in fees as an incentive for doctors to prescribe drugs costing 10 times as much.

Another issue is that it (presumably) requires similar skills and effort to administer either of the two drugs mentioned above. Medicare has proposed reimbursing physicians $16.80 plus 2.5 percent of the cost of the drug. In the above example:

     $1,000      $100
       102.5%     102.5%
       $1,025   $102.50
        $16.80     $16.80
 $1,041.80  $119.30

As this example illustrates, doctors would still get paid more than double to administer a $1,000 drug as a $100 drug. But the marginal benefit would not be as much as under the old system. Doctors administering the $1,000 drug would receive an extra $41.80 above the cost of the drug. Doctors administering the $100 drug would receive $19.30 in additional pay.

Believe it or not, there is significant opposition in Congress, which may ultimately kill the measure. This is a good example why Congress and CMS will never have the willpower to slow Medicare spending. Anything that reduces taxpayers’ burden – no matter how minor – encounters intense opposition.

Drug makers oppose the change because they obviously want an incentive for doctors to choose high cost drugs. Patient advocates oppose the change because they perceive it would reduce access to high cost drugs for patients. Members of Congress on both sides of the aisle oppose it… because drug lobbyists oppose it (unless I’m mistaken). What am I missing here?

It’s hard to say whether this is a good change or a bad change; it’s merely a pilot project. Unless CMS is free to experiment, the whole program is doomed to bankrupt taxpayers.

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