Spring 2016 Newsletter
CMS’s Proposed New Part B Payment Model
Medicare Part B drug reimbursement to physicians and hospital outpatient centers has been in the spotlight for the past few years. Average Sale Price (ASP) pricing reimbursement methodology and the increased approval of more office-administered drugs has dramatically increased spending on Part B drugs. Currently, Medicare Part B reimburses medications at a rate of ASP + 6%. It is CMS’s position that this payment structure may not always promote the most cost-effective prescribing and could be interpreted as encouraging physicians to prescribe and administer more costly agents to increase their revenue under the buy and build model. The total CMS cost for Part B drugs exceeded $20 billion in 2015.
In response to this concern and in an effort to move to a more value-based reimbursement, CMS has proposed a new reimbursement methodology with multiple components. Instead of the ASP plus 6% reimbursement, the new strategy proposes reimbursing at a smaller percentage of ASP with an additional flat-dollar fee. The percentage-based portion still provides for a variable amount for handling and dealing with overhead costs of purchasing and storing expensive specialty medications. Meanwhile, the flat-dollar amount provides more compensation for offices primarily dealing in lower-cost agents, such as primary care doctors and orthopedic specialties.
While CMS may have considered implementing a methodology that only provided a flat fee, this strategy would have likely created insufficient reimbursement for physicians dealing with high-cost specialty medications and would likely increase profits on inexpensive product. Physicians and outpatient centers dealing with the high-cost products should be reimbursed on the increased financial risks associated with handling and storing these products.
Based on all of these considerations, the newly proposed methodology would reimburse office-administered agents at a rate of ASP + 2.5% plus a flat-dollar fee of $16.80 per drug. CMS stated that they would update the flat dollar fee annually. For a drug with an ASP of $1,000, this new methodology would lead to a difference in reimbursement of $18.20, as shown in the chart below.
Based on the proposed reimbursement methodology, this creates a breakeven point of $480. At an ASP of $480, both methodologies equate to a reimbursement of $28.80. Therefore, for drugs with an ASP of less than $480, the new methodology will provide increased profitability for physicians. However, for drugs with an ASP greater than $480, Medicare Part B reimbursement under the newly proposed methodology will be decreased.
When looking at the above figures, it is clear that the goal of the new reimbursement strategy is to achieve cost savings, as the changes will not be budget neutral. The test to evaluate this new ASP change is scheduled to start in late 2016. CMS also continues to investigate other reimbursement methodologies that move away from fee-for-service reimbursement. Other reimbursement methodologies discussed include reference pricing, indication-based pricing, and outcomes-based risk-sharing strategies. CMS accepted comments on the proposed rule until May 9. PHSI will keep you abreast of any future reimbursement changes for Medicare Part B, and we welcome your feedback on the topic.