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CMS’s Misguided Experiment

May 2016, Vol 6, No 5
Leah Ralph
Director of Health Policy, ACCC

The noise around drug costs has gotten louder in recent months: policymakers clamoring for controls on drug pricing, congressional hearings calling on pharmaceutical executives to testify, and recommendations from the Medicare Payment Advisory Commission (MedPAC) focused on containing Medicare spending in the context of ever-increasing prescription drug costs.

In early March, the Centers for Medicare & Medicaid Services (CMS) responded, with a proposal to implement a national demonstration program that would target provider reimbursement and fundamentally change the way Medicare pays physicians and hospitals for Part B drugs.1 The scope of what CMS is proposing is sweeping: if finalized, it represents a significant departure from the methodology and philosophy underlying Medicare’s current reimbursement system, leading to bigger questions about the most appropriate and effective way to curb drug spending.

CMS has broad authority under the Center for Medicare and Medicaid Innovation, created by the Affordable Care Act, to test different models that would improve quality and lower costs in the Medicare program. However, the agency certainly seems to be pushing the scope of its authority, breaking from past demonstration programs to propose a mandatory model in which all Medicare Part B providers in hospital outpatient departments, physician offices, and pharmacies would be required to participate. The proposal, the Part B Drug Payment Model, would consist of 2 phases, in which providers would be divided into 4 groups: 3 experimental groups and 1 control group during a 5-year period.1

Phase I of the model would be implemented as early as August 2016, and would mandate that approximately 50% of all Part B providers would have their reimbursement rates reduced to average sales price (ASP) plus 2.5% plus a flat fee of $16.80 per drug per day. Of note, congressionally mandated sequestration will continue to apply to payments made under the model, meaning the proposed payment rate will, in fact, be ASP plus 0.86% plus $16.53 per drug per day. The remaining 50% of Part B providers, the control group, would continue to be reimbursed for Part B drugs at ASP plus 6%.1

The goal, which policymakers have discussed for some time, is to eliminate financial incentives for providers to prescribe more expensive drugs.

CMS continues its ambitious timeline with phase II, which would begin as early as January 2017, and further divide the control and test groups, creating a 4-arm control trial, and overlay a requirement to use value-based pricing reimbursement strategies and clinical decision support tools to produce Medicare savings.

One (unlucky) group of providers will be subject to the reduced ASP rate and be required to utilize value-based pricing tools. These tools may include:

  • Reference pricing, in which Medicare would set a standard payment for therapeutically similar products
  • Indications-based pricing, in which Medicare would vary payment for a drug based on its clinical effectiveness for different indications
  • Voluntary risk-sharing agreements, which would allow CMS to enter into voluntary agreements with manufacturers to link clinical outcomes with payment
  • Discounting or eliminating patient coinsurance to encourage beneficiary use of high-value drugs.
Despite a preliminary list of tools, CMS failed to describe these value-based pricing approaches in any meaningful detail, leaving big questions about how it will develop this methodology, and how the agency will make determinations about high-value treatments.

Perhaps most unnerving, providers would be assigned to arms of the trial at random, based on their geographic location in PCSAs (Primary Care Service Areas), which are clusters of zip codes that reflect primary care service delivery. Although CMS has structured phase I to be budget-neutral for the Medicare program, among providers, there will be winners and losers. The program is designed to redistribute drug spending by increasing payments to provider specialties, such as primary care, that utilize relatively inexpensive drugs, and decreasing payments to hospitals and physician specialties, such as oncology and ophthalmology, that often use more costly drugs.

Specifically, under this proposed model from CMS, the tipping point is $480: drugs that cost more than $480 daily on average would result in lower reimbursement, whereas drugs costing less than $480 daily would produce higher payments than what is reimbursed today. The majority (7 in 10) of drugs that would make up the largest reduction in reimbursement are used to treat patients with cancer. Moreover, many of these drugs do not have a lower-cost alternative.2

Regarding policy and process, the Association of Community Cancer Centers remains deeply concerned. Rather than working with cancer care professionals to build the infrastructure needed to define quality and value in their cancer programs, CMS has responded to a call for reigning in drug costs with a myopic focus on provider reimbursement.

Our members have partnered with CMS on meaningful payment reform, including the most recent Oncology Care Model, and will soon be dedicating extensive resources to navigating a new and complex reformed physician payment system under MACRA (Medicare Access & CHIP Reauthorization Act of 2015). Oncologists are ready for change, but CMS’s proposal reaches too far and too fast, with too few safeguards and seemingly little understanding of the impact this will have on community cancer care and patient access.

Adapted from an ACCC Oncology Issues article. Used with permission.


  1. Centers for Medicare & Medicaid Services. CMS proposes to test new Medicare Part B prescription drug models to improve quality of care and deliver better value for Medicare beneficiaries. Press release. March 8, 2016. Accessed April 11, 2016.
  2. Avalere. Proposed Medicare Part B rule would reduce payments to hospitals and some specialists, while increasing payments to primary care providers. April 7, 2016. Accessed April 11, 2016.

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