The Centers for Medicare and Medicaid Services (“CMS”) announced a proposed rule (CMS-1670-P) to test new models to improve how Medicare Part B pays for prescription drugs.  Medicare Part B covers drugs that are administered in a physician’s office or hospital outpatient facilities such as chemotherapy medications, injectables like antibiotics, or eye care treatments such as Lucentis®, a drug commonly used by retina specialists.

According to CMS, the proposed rule is designed to test physician and patient incentives to do two things; drive the prescribing of the most effective drugs, and test new payment approaches to reward positive patient outcomes.  The proposal involves reducing the percent of add-on to the Average Sales Price (“ASP”) of the drugs from 6% to 2.5% plus a flat fee of $16.80.  CMS suggests that the current 6% add-on to the ASP encourages the use of higher priced drugs versus inexpensive drugs where the higher cost does not improve outcomes. By lowering the ASP add-on to 2.5% plus a flat fee, CMS is looking to discourage the use of expensive drugs where less expensive drugs produce comparable outcomes.

The second of the proposed changes would utilize the value-based purchasing tools now used by private health plans, pharmacy benefit managers, hospitals and other entities that manage health benefits and drug utilization. CMS reviewed numerous value-based purchasing tools and identified those that may be applicable to payment for Part B drugs with the same positive results.   These tests would begin no sooner than January 1, 2017 and the pricing strategies would include:

  • Discounting or eliminating patient cost-sharing;
  • Feedback on prescribing patterns and online decision support tools to determine best practices based on a clinician’s prescribing patterns relative to geographic and national trends;
  • Indications-based pricing to test the payment for a drug based on its clinical effectiveness for different indications;
  • Reference pricing for groups of similar drug products; and
  • Risk-sharing agreements with drug manufacturers based on outcomes.

If finalized, the proposed model would run for five years with the new pricing frameworks active in the last three years. While all healthcare providers in Medicare Part B would be required to participate, not all would be subject to the test—CMS would place providers in control or study groups based on zip code.

“These models would test how to improve Medicare beneficiaries’ care by aligning incentives to reward value and the most successful patient outcomes,” said Dr. Patrick Conway, CMS Deputy Administrator for Innovation and Quality & CMS Chief Medical Officer. “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.”

The American Society of Clinical Oncology (“ASCO”) along with several cancer organizations and the pharmaceutical industry have publicly reacted negatively to the CMS proposed rule.  A coalition of more than 100 trade groups sent a letter to CMS detailing their opposition and asking for the rule to be withdrawn. In reporting by Medscape Medical News, Allen S. Lichter, M.D., CEO of ASCO, said that it is “inappropriate for CMS to manipulate choice of treatment for cancer patients using heavy-handed reimbursement techniques.”   He added that physicians “did not create the problem of drug pricing, and its solution should not be on their back.”

The proposed rule is published today in the Federal Register and will be open for comments for 60 days, through May 9, 2016.  To view the proposed rule, click here.

For further information on the subject matter of this alert, please contact the following FisherBroyles attorneys:

Brian E. Dickerson

Nicole Hughes Waid

Anthony J. Calamunci