Medicare’s Part B Drug Proposal: Not the Right Solution for Oncology

A proposal by the Centers for Medicare & Medicaid Services (CMS) to change the way Medicare pays for drugs administered in outpatient settings has drawn fierce opposition from the oncology provider community. The Part B Drug Payment Model, part of CMS’s broader initiative to move the healthcare industry toward value-based care, would test whether a modified reimbursement formula would enable physicians to provide better care by removing an incentive to prescribe high-cost drugs. But oncologists argue that the proposed rules would limit patient access and do little to tackle the issue of drug pricing.

The Drug Problem in Oncology

Drugs are the fastest growing sector of healthcare costs; oncology drug costs, in particular, are rising at an unsustainable rate. In 2014, Medicare spent nearly $21 billion on Part B drugs, 55% of which was associated with cancer treatment.¹ The nature of many cancer drugs – live-saving therapies with few if any alternative treatments – fuels those high prices.

It’s no surprise, then, that CMS is looking for opportunities to reduce its drug spending. And a clear target for reform is the way Medicare reimburses for drugs administered in physician offices and hospital-based outpatient departments. Currently, Medicare reimburses providers for the average sales price (ASP) of a drug, then tacks on an additional 6%. That means providers get paid more for prescribing a higher-cost medication – even if a cheaper, equally effective alternative is available.

CMS’s Part B Drug Proposal

CMS’s proposal tries to change that. Beginning this year, the first phase of the Part B Drug Payment Model would lower the add-on from 6% to 2.5% and add a flat fee of $16.80 per drug per day.

The Response

The oncology community has been nearly unified in its opposition to the Part B proposal. CMS has fielded hundreds of responses during the proposal’s comment period, with common points of criticism including the following:

Potential for Reduced Access – The across-the-board reimbursement cut is intended to encourage providers to prescribe less-expensive alternatives to higher-priced drugs. But what if a lower-cost option isn’t available or appropriate? The cut runs the risk of limiting patient access to the most appropriate medical treatment if oncology practices cannot afford to purchase and provide high-cost drugs, even ones with no alternative.

Unprecedented Scale – The proposal creates a mandatory demonstration, which opponents view as an overreach of authority by CMS’s Center for Medicare & Medicaid Innovation (CMMI). CMMI was established under the ACA to test payment reform projects among voluntary groups of providers prepared to take on the change. The national rollout called for under CMS’s proposal will affect all oncology practices, and providers and lawmakers alike are concerned that the proposal could set a precedent for a future administration to use CMMI as a vehicle to change other Medicare policies.

Narrow Focus – Many view the proposal as too narrowly focused on cost cutting, and thereby lacking sufficient consideration for the potential unintended consequences. In addition to the charge that the proposal could restrict patient access, oncologists worry that small or rural practices, which likely pay a higher ASP for many oncology drugs, could be forced out of business, and that cancer services would get pushed to higher-cost hospital settings.

Striking the Right Balance

Everyone in healthcare – except, perhaps, pharmaceutical companies – can agree that drug prices are too high. But that’s a problem that physicians alone can’t be expected to fix. And yet that seems to be the outcome CMS is hoping for with this proposal: if physicians simply prescribe lower-cost alternatives to expensive cancer treatments, drug companies will start pricing their medications more competitively. Right?

That’s a heck of an assumption on which to base such a far-reaching policy.

Successful payment reform in oncology requires a balanced approach. CMS’s proposed rules for Part B drugs go too far too quickly, and amount to a superficial solution – one that might hurt cancer patients. As urgent as the need for reform may be, CMS needs to focus on well-thought out, evidence-based models that can simultaneously achieve cost savings and improve care delivery and patient outcomes.

Conveniently, CMS can start by looking in its own backyard. CMMI’s Oncology Care Model (OCM) is an example of a more comprehensive reform that moves to episode-of-care reimbursement while also providing practices resources to ease (i.e., fund) their care transformation work. Moreover, CMMI’s approach to developing OCM was measured, transparent, and collaborative – oncologists were part of the process.

Effective reform should provide oncologists with the time and resources they need in order to implement and follow evidence-based guidelines that can ultimately curb costs. Given the magnitude of proposed change, the process to develop and test new payment models is just as important as the end result.

Published August 2, 2016