Today’s Managing Health Care Costs Number is 6%
The Centers for Medicare and Medicaid Services has announced a new proposal for how to pay for pharmaceutical products that are purchased and administered by physicians. The existing approach – CMS pays the acquisition cost plus 6%. This offers providers a huge incentive to prescribe the most expensive drug when there is a choice. An especially good example is Avastin ($50) vs. Lucentis ($2000) for diabetic retinopathy. Providers can earn between $3 and $120 when they “resell” the medication. This is not the set of incentives we want!
The new approach is to try a bunch of different approaches region by region, and measure their impact. For instance, instead of paying doctors a 16% administration fee, CMS might pay a flat fee ($16.80) and a 2.5% variable fee to account for the cost of carrying inventory of more expensive medications. Source All the payment methods will be calculated to be budget neutral –but there will obviously be winners and losers.
I love this approach. We wish we could exactly predict the results of payment changes- but unintended consequences abound. Let’s scientifically test to see what reallyworks – and then expand to the rest of the market! MedPACsupports changing the 6% rule too.
Predictably, there are a lot of interest groups that hate this
Pharmaceutical companies worry that this would encourage the use of lower priced medications – which could impact margins. There was a sell-off of stocks in the pharmaceutical industry when this new approach was announced.
The Biotechnology Innovation Organization, billed as the largest trade association for biotech, said it was “gravely concerned.” Source
- Physicians who administer drugs – especially oncologists, rheumatologists and ophthalmologists. It’s hard to be neutral when CMS starts threatening your margin.
The government is “proposing a mandatory experiment on seniors’ cancer care,” Ted Okon, the executive director of the Community Oncology Alliance, a trade group for small oncology practices, said in an email. Source
Dr. Allen S. Lichter, the chief executive of the American Society of Clinical Oncology, which represents cancer doctors, said the administration had identified a real problem, “the skyrocketing prices of drugs.” But he added, “Doctors did not create this problem, and it will not be solved by putting pressure on physicians.” Source
