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April 10, 2017

MedPAC floats plan for Medicare Part B price negotiations

Daily Briefing

The Medicare Payment Advisory Commission (MedPAC) on Thursday voted 15-0 to recommend a competitive pricing program and other changes to reimbursements for drugs covered under Medicare Part B.

MedPAC Chair Francis Crosson said the panel feels an "obligation" to address rising drug costs for Medicare and its beneficiaries. The Medicare program, along with Medicare beneficiaries, paid about $26 billion for Part B drugs in 2015, up from about $23 billion in 2014. Further, spending on medicines covered under Part B, which covers doctors' services, has grown by about 9 percent annually since 2009, considerably outpacing inflation rates, CQ News reports.

Competitive pricing recommendations

MedPAC recommended that Congress no later than 2022 create a path to give Medicare authority to negotiate prices for drugs covered under Part B. Currently, federal law does not allow Medicare to negotiate with drugmakers on prescription drug prices. Instead, Medicare calculates Part B drug reimbursements based on a formula that adds a premium to the average sales price of the drugs.

However, under MedPAC's proposed Drug Value Program (DVP), a small number of vendors would negotiate the prices Medicare would pay for drugs covered under Part B. The vendors could use tools private insurers commonly use to help control drug costs, such as creating drug formularies, according to CQ News.

The program would be voluntary for health care providers. Participating providers would purchase the drugs at the rate negotiated by the vendor, and Medicare then would reimburse providers at the purchase rate plus an administration fee. Medicare would determine the administration fee under its physician fee schedule or the outpatient prospective payment system. According to MedPage Today, providers would be able to share in savings generated under the DVP.

MedPAC staff estimated that implementing the DVP could lower Medicare spending by between $250 million and $750 million in the program's first year and between $1 billion and $5 billion over five years.

Poll: Drug prices are U.S. residents' top health policy concern

Recommended changes to Part B's reimbursement model

MedPAC also recommended several changes to the reimbursement model Medicare uses for drugs covered under Part B, including:

  • Creating consolidated billing codes for biosimilar drugs;
  • Improving data reporting on average sales price by requiring all manufacturers of drugs covered under Medicare Part D to report such pricing data;
  • Increasing penalties on drugmakers that are required to report average sales price data but fail to do so;
  • Limiting payment rate increases for drugs that are paid for based on average sales price by requiring drugmakers to pay Medicare a rebate if their drugs' average sales price exceed a particular inflation benchmark; and
  • Reducing the payment rate for drugs that are paid for based on wholesale acquisition cost from wholesale acquisition cost plus 6 percent to 3 percent.


Pharmaceutical Research and Manufacturers of America (PhRMA) spokesperson Allyson Funk said the group opposes the panel's recommendations regarding Medicare's approach to Part B drug pricing, saying the recommendations could "have a detrimental impact on access for patients who rely on Part B therapies to treat serious and complex conditions."

In contrast, Neeraj Sood, director of research at the Schaeffer Center for Health Policy and Economics at the University of Southern California, said using drug formularies could help promote competitive prices and thereby increase patients' access to drugs covered under Part B.

Amy Bricker, a MedPAC commissioner and VP for supply chain strategy at Express Scripts, expressed doubt that DVP would result in cost savings. She added, "There is a way for us, I believe, to foster competition, to bring value to the market without adopting something as drastic as this" (Frieden, MedPage Today, 4/6; Young, CQ News, 4/6 [subscription required]; Dickson, Modern Healthcare, 4/6).

What providers can learn from the drug pricing debate

We already knew that patients are becoming more sensitive to health care costs. But public uproar over one drug's 5,000 percent "overnight" price hike proves that patients are more discerning—and vocal—than ever. With more of their money on the line, patients are actively deciding when and where to access care based on cost.

We saw it coming—and we laid out concrete tactics for dealing with price sensitivity in your market. The first chapter in our study, The Consumer-Oriented Ambulatory Network, focuses on how you can retain market share by making services more affordable. Download the study to learn more.


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