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Medicare Makes Ambitious Bid to Overhaul Its Drug Purchasing

By Kerry Young, CQ Roll Call
March 9, 2016 -- The Obama administration has plunged into a contest with the pharmaceutical industry, putting forward a wide-ranging proposal for overhauling Medicare payments for chemotherapy, glaucoma treatments, and other often costly drugs administered in doctors’ offices.
The pharmaceutical tab doubled to $22 billion between 2015 and 2007 for Medicare’s Part B program, which covers services provided in private medical practices and hospital outpatient departments, according to a draft rule unveiled Tuesday. The Centers for Medicare and Medicaid Services proposal not only seeks savings in Medicare’s Part B program but also opens discussion on a path for tying future drug payments to judgments about how much benefit a treatment provided patients, with rebates possible for poor outcomes.
The draft marks one of the last chances for the Obama administration to leave a major stamp on American medicine through the Center for Medicare and Medicaid Innovation, which was created by the 2010 health law. CMS wants to start the earliest stage of the Part B drug model this fall and set the stage for broader work to begin as early as 2017. It’s unclear what will happen to CMMI, which has been the engine for several major Medicare test programs, in the next administration.
The new proposal builds on research that raised questions about how well patients may fare under Medicare’s current Part B reimbursement approach, which adds a premium to the reported average sales price of a drug. The fee, intended to be 6 percent of the average sales price, was reduced by the budget sequester to about 4.3 percent of the reported price. These financial incentives put a doctor or medical organization at a disadvantage for using a less costly drug when a similar, more expensive one is available or reducing the use of medicines.
“These models would test how to improve Medicare beneficiaries’ care by aligning incentives to reward value and the most successful patient outcomes,” said Patrick Conway, CMS’ chief medical officer and leader of CMMI, said in announcing the rule. “The choice of medications for beneficiaries should be driven by the best available evidence, the unique needs of the patient, and what best promotes high quality care.”
Conway said that the model would not restrict what medicines can be used. Still, the draft proposal drew fierce opposition from drugmakers even before it was unveiled. CMS had let details slip in a notice accidentally posted last month for its administrative contractors. On Tuesday, the Pharmaceutical Research and Manufacturers of America and Biotechnology Innovation Organization both quickly reacted to the draft, arguing that it could limit patients’ access to crucial medicine.
The CMS plan will draw further criticism in the public comments that the agency will accept through May 9, including complaints from cancer doctors. Influential medical groups will likely protest to lawmakers about the plan, seeking their aid in altering or stopping CMS from changing reimbursements. The decisions made in the final rule may indicate how well advocates for reining in pharmaceutical costs will fare in battles with the influential industry.
Compelling Participation
With the Part B plan, CMS builds on a trend toward mandating participation in tests of alternative payments instead of seeking volunteers. 
CMS last year designed a program for tying payments for home health care to judgments about the quality of service, a so-called value-based model. The participants are home health agencies in nine selected states. CMS then created a test program with a similar focus on tying payments to results for one of the most common surgical procedures for people on Medicare, knee and hip replacements. Most hospitals in 67 regions of the country will be compelled to participate.
The Part B model goes a step further and is designed to sweep in much of the nation. CMS is seeking to create four comparison groups, including a control arm, for the model in selected geographic areas. Maryland will be excluded due to a large-scale test program already underway between the state and CMS regarding payments. That leaves about 7,000 separate areas in different parts of the country to participate.
"Mandatory participation allows us to observe the experiences of an entire class of providers and suppliers with various characteristics, such as different geographies, patient populations, and specialty mixes, and to examine whether these characteristics impact the effect of the model" on prescription patterns and Medicare expenses, CMS said.
In the control arm, the current average sale price plus 6 percent model would persist. In the three other groups, the add-on payment would fall to 2.5 percent of reported prices with a flat fee added. CMS has proposed $16.80 as the flat fee, although the agency appears flexible to other suggestions. In some of these arms of the model, tools to spur a shift toward value-based purchasing could be added in later stages, CMS said, including procedures already used by insurers and pharmacy benefit managers to control costs.
CMS said it intends to use a number of factors to judge the success of the alternative payment systems. It will examine whether the program has reduced costs, changed prescribing patterns or had unintentional consequences, the agency said.
In the draft, CMS also sought to revive consideration of an alternative Part B payment that was brought forward and abandoned during President George W. Bush’s administration. The model, now labeled the competitive acquisition program, was designed to relieve doctors of the administrative burden of managing a supply of medicines. Under the program, physicians purchased drugs through a vendor instead of buying drugs and billing Medicare for them. That eliminated the administrative costs, which physicians have cited as a reason for continuing add-on reimbursements based on a percentage of the average sales price. The program ran from 2005 to 2008. If it was reintroduced, it may need to be tweaked, CMS said, and requested comments on this point.
Officials also requested feedback on moving toward a bundled-pricing approach, with one set price for episodes of illnesses that are treated with Part B drugs.
House and Senate Republican committee chairmen on Wednesday called the rule “another troubling example of unelected bureaucrats making decisions behind closed doors that impact the American people and their healthcare.”
“This decision was made with a complete lack of transparency and clear disregard for the people and stakeholders who will be impacted the most,” said a statement by House Ways and Means Committee Chairman Kevin Brady of Texas, House Energy and Commerce Committee Chairman Fred Upton of Michigan and Senate Finance Committee Chairman Orrin G. Hatch of Utah. “CMMI's proposed experiment on seniors stands to limit access to the critical care the sickest Medicare beneficiaries rely on, as well as disrupt how health care providers serve patients in the future. The model could ultimately result in seniors' receiving different standards of care based solely on where they live in the country.”



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