March 14, 2016

CMS Forges Ahead With Controversial Part B Drug Demo — What Does This Mean for You?

Following weeks of speculation and angst, including a false start posting on a Medicare contractor’s website earlier this winter, the Centers for Medicare & Medicaid Services (CMS) this week issued a controversial mandatory demonstration project aimed at curbing incentives the agency believes are causing sharp increases in Part B drug spending.

A number of stakeholders — including drug manufacturers, physician specialty groups and Republicans in Congress — criticized the proposal as an overreach and signaled strong opposition. Others, particularly payers, reacted more positively.

At its core, CMS is seeking to address today's system that ties reimbursement for drugs administered in physician offices and other outpatient settings to the price of each drug. The current formula adds 6 percent to the average sale price of a drug, a system CMS and others — including the Medicare Payment Advisory Committee (MedPAC), which developed the framework for the new model last year — contend incents providers to prescribe more expensive drugs rather than the most clinically appropriate drug.

Under Phase I of the proposed model, CMS will pay only 2.5 percent, plus a flat $16.80 fee that will be adjusted for inflation annually. The hope is that this approach will reverse the incentive for prescribing of high-cost drugs.

The demo would be mandatory for eligible practices and drugs in geographic areas selected by the agency. It would also be budget neutral, meaning CMS is not anticipating it will achieve cost savings. The agency is proposing to use Primary Care Service Areas (PCSAs) to establish boundaries and to take into consideration the number of Part B beneficiaries and Part B drug spending to randomly select PCSAs as either control or intervention sites.

CMS is also proposing a non-budget neutral Phase II that would evaluate the impact a number of value-based pricing tools might have on Part B drug spending. Examples would include using reference pricing to set reimbursement for all drugs in one class, paying different prices based on a drug's efficacy per indication and developing Clinical Decision Support (CDS) tools to inform prescribing. Proposals for Phase 2 would be issued for public comment at latter date, but stakeholders are concerned about the very limited comment and engagement period that would occur during this important second phase.

The agency is aggressively implementing this model; Phase I could begin in the early fall. All parties affected by the proposal should assess the impact it would have on their Part B reimbursement and consider engaging accordingly during the comment process. Stakeholders should also pay close attention to the Congressional response, including potential actions to curtail or prevent altogether its implementation.

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