Medicare Part B Drugs Payment Model

CMS has announced a proposed rule to test a new model to improve how Medicare Part B pays for prescription drugs and supports physicians and other clinicians in delivering higher quality care. The proposed Medicare Part B Model would test new ways to support physicians and other clinicians as they choose the drug that is right for their patients. It is designed to test different 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.

Background 

Medicare Part B covers prescription drugs that are administered in a physician’s office or hospital outpatient department. Drugs paid under Medicare Part B generally fall into three categories:

  • Drugs furnished incident to a physician’s service in the office or hospital outpatient settings,
  • Drugs administered via a covered item of durable medical equipment, and
  • Other categories of drugs explicitly identified in the law.

Model Details 

Phase 1: Adjustments to the ASP+6 percent formula
Today, Medicare Part B generally pays physicians and hospital outpatient departments the average sales price of a drug, plus a 6 percent add-on. The proposed model would test whether changing the add-on payment to 2.5 percent plus a flat fee payment of $16.80 per drug per day changes prescribing incentives and leads to improved quality and value. CMS would update the flat fee at the beginning of each year by the percentage increase in the consumer price index for medical care for the most recent 12-month period. This test would begin in late 2016 (no earlier than 60 days after the rule is finalized).

CMS expects that the add-on payment of 2.5 percent plus a flat $16.80 fee will cover the cost of any drug paid under Medicare Part B. The flat fee is calculated such that it is budget neutral in aggregate. CMS intends for the test to result in savings through changes in prescribers’ behavior.  


Phase 2:  Value-Based Purchasing (VBP)
Commercial health plans, pharmacy benefit managers, hospitals, and other entities that manage health benefits and drug utilization successfully employ an array of tools including value-based pricing and feedback on prescribing patterns to improve the value of drug payments. To produce a menu of value-based purchasing options, CMS reviewed the numerous tools used by entities that manage drug and health benefits and identified those that may be applicable to payment for Part B drugs with the same positive results. Phase 2 would begin no sooner than January 1, 2017.

The proposed value-based pricing strategies include:

• Discounting or eliminating patient cost-sharing. Patients are often required to pay for a portion of their care through cost-sharing. This proposed test would decrease or eliminate cost sharing to improve beneficiaries’ access and appropriate use of effective drugs.

• Feedback on prescribing patterns and online decision support tools. This proposed test would create evidence-based clinical decision support tools as a resource for providers and suppliers focused on safe and appropriate use for selected drugs and indications. Examples could include best practices in prescribing or information on a clinician’s prescribing patterns relative to geographic and national trends.

• Indications-based pricing. This proposed test would vary the payment for a drug based on its clinical effectiveness for different indications. For example, a medication might be used to treat one condition with high levels of success but an unrelated condition with less effectiveness, or for a longer duration of time. The goal is to pay for what works for patients.  

• Reference pricing. This proposed model would test the practice of setting a standard payment rate—a benchmark—for a group of therapeutically similar drug products.

• Risk-sharing agreements based on outcomes. This proposed test would allow CMS to enter into voluntary agreements with drug manufacturers to link patient outcomes with price adjustments.

Additional Information