Centers for Medicare and Medicaid Services (CMS) announced earlier this month that it plans to pilot a new fee structure for Medicare Part B drugs (physician administered therapies, including most biologics).
This is BIG news, with huge implications and possibly the first steps by the Federal Government toward having the power to negotiate Medicare drug prices!
Under the Affordable Care Act of 2010, CMS was given the authority to test new payment models. It has taken 6 years to agree what these test should look like, and the result is:
- A new reimbursement basis for Part B
- With and without value-based purchasing tools
CMS’s main proposal is to change Medicare pricing from the current ASP+6% to ASP+2.5% plus a fixed fee of $16.80.
This makes a lot of sense as the 6% administration fee is vastly different dependent on the price of the drug. On a low-priced generic of $10 a dose, 6% is only $0.60, but on an expensive biologic at $1,000 a dose, it is $60.
With so many high-priced biologics launched in recent years, it is not surprising CMS is looking to revamp the administration fee. The new structure would mean that for drugs costing less than $500 a dose the administration fee will go up, otherwise they will go down.
However, perhaps the far more important part of these new payment ideas is around value-based tools.
Some of the key tools CMS will test will be:
- Indications-based pricing
- Drugs approved for multiple indications will have different prices for each indication depending on their effectiveness
- Reference pricing
- Reimbursement would be benchmarked against therapeutically similar drugs
- Risk-sharing agreements based on outcomes
- Reimbursement would be linked to patient outcomes, e.g., no payment if the therapy did not meet certain endpoints
All three of these tools are common practice in Europe.
What is also common in Europe is for centralized government to be heavily involved in drug pricing. To date, CMS is barred from negotiating prices. However, if these “test” ideas were to become approved practice, it is difficult to see how CMS would not have managed to get a large foot in the price negotiation door. For instance, if CMS were to set the metrics around when risk-based contracts kicked in, this would be tantamount to CMS negotiating reimbursement terms.
So, is the reality that CMS is pushing Medicare, and with it the rest of the U.S. drug market, into a European-style system where government is heavily involved in drug prices?