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MedPAC Stirs Talk of Cost-Based Approach on Some Drugs

By Kerry Young, CQ HealthBeat Associate Editor

September 11, 2014 -- Despite the objections of drugmakers, the idea of having Medicare set payments for some drugs based on the cheapest price of a similar group of medicines is still on the table.

For the second time this year, Congress's advisers on Medicare have delved into whether and how the so-called least costly alternative approach could be applied to medicines administered in doctors' offices. The option would exist in cases where medical evidence suggests two or more drugs for the same condition produce roughly the same results.

The Medicare Payment Advisory Commission (MedPAC) made no formal recommendations last week. Medicare took the approach between 1995 and 2010 for so-called Part B drugs administered in a physician office setting. The policy was dropped due to a federal court ruling.

Medicare's spending on Part B drugs rose by 3 percent, to $13.2 billion in 2012.

Government reports have estimated major savings from the approach: an inspector general's audit cited by MedPAC staff projected $1.1 billion in savings over two years if the least costly alternative approach was used for treatment of the eye condition wet age-related macular degeneration. The Congressional Budget Office has estimated $500 million could have been saved in connection with Part B payments for a drug for arthritis of the knee.

Cancer medicines also often fall into the category.

New law would be needed to authorize the policy, MedPAC staff said. Commission members noted that there would be some challenges going that route.

One hurdle would be deciding when drugs were similar enough to merit being considered as a class, said Katherine Baicker, a MedPAC member and professor of Health Economics at the Harvard School of Public Health.

"The easy case is when things are truly equivalent and it makes no sense to pay more for the same likely effectiveness," she said. 'The much harder case is when there is an incremental improvement."

Medicare would need to maintain some incentive for companies to proceed with smaller advances in medicine, she said.

Rita Redberg, a cardiologist from the University of California San Francisco, said it would be crucial for Medicare to set strict standards for determining that newer drugs truly have some advantages to existing products. She said that companies often tout their new releases this way without having much to show for it.

"I hear innovation a lot more than see it," she said.

The Pharmaceutical Research and Manufacturers of America (PhRMA) objects to the concept.

Randy Burkholder, PhRMA's vice president for policy and research called the least-costly alternative approach "unworkable."

The least-costly alternative approach "would create significant access barriers to important new treatment options," Burkholder said. "We need better approaches to supporting efficient delivery of high-quality, patient-centered care that help get patients the care that is best for them and support continued medical progress."

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