CMS has released a complex and controversial plan – the Part B Drug Payment Model — to test new Medicare payment methods for certain Part B drugs to determine whether alternative payment designs will reduce Medicare expenditures while preserving or enhancing the quality of care provided to Medicare beneficiaries. CMS suggests that the current Medicare Part B drug reimbursement framework — based on the drug’s average sales price (ASP) plus 6 percent — provides a financial incentive to prescribe more expensive drugs without encouraging high-value care. To remove this incentive and promote value-based pricing, CMS is proposing to test a laundry list of reforms in selected geographic areas, such as basing payment on ASP plus a flat fee or incorporating a variety of value-based strategies used in many commercial plans.

The Part B Drug Payment Model (Model) would apply to the majority of drugs paid under Part B, including: drugs and biologicals with HCPCS codes that are nationally priced under section 1847A of the Social Security Act, including ASP, Wholesale Acquisition Cost (WAC), and Average Manufacturer Price (AMP) -based payment amounts; drugs and biologicals paid separately under the hospital outpatient prospective payment system (including pass-through drugs); non-infused drugs furnished by durable medical equipment (DME) suppliers; and intravenously- and subcutaneously-administered immunoglobulin G.  CMS proposes to exclude some categories of drugs, however, such as:  contractor-priced drugs; influenza, pneumococcal pneumonia and hepatitis B vaccines; drugs infused with a covered item of DME (excluded during phase 1 only “so that DME policy can focus on issues related to DME and so that the model does not interfere with decisions related to the inclusion or exclusion of these drugs in DME competitive bidding”); separately billable End-Stage Renal Disease drugs; blood and blood products; and certain drugs in short supply.  All providers and suppliers furnishing Part B drugs that are included in the Model will be required to participate (although in some cases the provider/supplier will continue to receive payment of ASP + 6 percent as part of a control group).

In Phase 1 of the Model, CMS would reduce the 6 percent ASP add-on to 2.5 percent plus a flat fee that is calculated to ensure that total estimated payments under the Model are budget neutral with regard to aggregate Part B spending. That is, CMS is not seeking to achieve overall Medicare savings from this phase of the Model, but CMS anticipates that the policy will modestly shift money from hospitals and specialties that use higher-cost drugs (e.g., ophthalmology), to specialties that use lower-cost drugs (e.g., primary care, pain management, orthopedic specialties).  CMS estimates that the fee would be $16.80 per drug per day administered.  CMS proposes to update the flat fee amount annually based on the percentage increase in the consumer price index (CPI) for medical care for the most recent 12-month period.  CMS seeks comments on whether additional measures should be taken to limit the add-on amounts, especially for very low cost drugs, although the agency raised concerns that adding more variation in Phase I (such as different add-on tiers based on drug costs) could “negatively impact the statistical power of this model.”

Phase II would test the use of certain value-based purchasing (VBP) tools that currently are employed by commercial plans, pharmacy benefit managers, hospitals, and other entities that manage health benefits and drug utilization. Specifically, CMS is proposing VBP strategies that include one or more of the following specific tools:

  • Reference pricing: A benchmark rate would be set based on the current payment rate for a drug or drugs in a class, with that benchmark rate then used as the basis of payment for all other therapeutically similar drug products in a group. For instance, the benchmark could be set at the average price for drugs in a group of therapeutically-similar drugs, the most clinically effective drug in a group, or another threshold. Beneficiaries could not be billed for any difference in pricing between the benchmark rate and the statutory payment rate or the provider’s charge for the drug prescribed.
  • Indications-based pricing: Payment for a drug would be adjusted based on the product’s safety and cost-effectiveness for a specific indication as evidenced by published studies or evidence-based clinical practice guidelines.
  • Outcomes-based risk-sharing agreements: CMS would enter into voluntary agreements with drug manufacturers to link price adjustments to patient health outcome goals. CMS could base these goals on outcome measures submitted by the manufacturer as part of a package of reliable scientific evidence regarding the clinical value of a drug.
  • Discounting or eliminating patient cost-sharing: CMS could decrease cost sharing for Part B drugs deemed to be high in value.

In addition, Phase II would test the use of clinical decision support tools based on competent and reliable scientific evidence, clinical guidelines, and Part B claims data. CMS seeks comment on any additional types of value-based pricing that could be considered for future rulemaking.

CMS does not intend to apply all of these tools to all Part B drugs; instead, it plans to use these tools in a limited manner for certain drug HCPCS codes after considering their appropriateness for specific Part B drugs. CMS plans to finalize the implementation of specific tools for specific HCPCS codes after soliciting public input and providing public notice through a separate subregulatory process.  CMS anticipates achieving savings in Phase II, but it does not “have enough detail on the structure of the final value-based purchasing component to quantify potential savings.”

CMS proposes testing the Model for five years. Phase I would begin in the fall of 2016 (no earlier than 60 days after the rule is finalized).  Phase II would begin no earlier than January 1, 2017 and could take several years to fully implement.  CMS intends to have both phases of the Model in full operation during the Model’s last three years.

The following chart illustrates the phases and arms of the Model, and indicates the variety of payment policies that would be effective simultaneously:

Phase I —ASP+X

(no earlier than 60 days after display of final rule, Fall 2016)

Phase II —VBP

(no earlier than January 2017)

  • ASP+6% (control)
  • ASP+2.5% and Flat Fee Drug Payment ($16.80)
  • ASP+6% (control)
  • ASP+6% with VBP Tools.
  • ASP+2.5% and Flat Fee Drug Payment ($16.80)
  • ASP+2.5% + Flat Fee Drug Payment ($16.80) with VBP Tools

CMS seeks comments on numerous provisions of the proposed rule; CMS will accept comments until May 9, 2016.