How to Reduce Medicare Drug Costs
By THE EDITORIAL BOARD THE NEW YORK TIMES MARCH 10, 2016
Prescription drug spending in Medicare has been rising fast, but it is not completely clear what policies are driving the increases. The Obama administration hopes to find ways to control costs by testing different approaches to paying for the drugs. The experiments would apply to a class of drugs covered under Medicare Part B that are administered in doctors’ offices and hospitals to treat cancer, rheumatoid arthritis and other conditions.
The government and the program’s beneficiaries spent nearly $21 billion on these medicines in 2013, 29 percent more than in 2007, according to a Government Accountability Office report published in November. A big part of the reason spending has shot up is that drug prices have been going up faster than inflation or overall medical costs.
Doctors and hospitals often have a financial incentive to pick more expensive medicines even when cheaper alternatives might be as effective. That is because Medicare pays doctors and hospitals the average selling price of Part B medicines plus 6 percent. As a result, a medical provider will get $60 for administering a $1,000 drug and $6 for injecting a $100 medicine.
The Centers for Medicare and Medicaid Services wants to test what would happen if it instead paid providers 2.5 percent of average selling prices plus $16.80 per drug per day. That should in theory reduce the financial incentive to pick the higher-cost drug.
The government would also try to determine what happens when it reduces or eliminates the 20 percent co-payment that Medicare beneficiaries are required to pay for Part B drugs. Since some patients cannot afford co-pays, some doctors prescribe cheaper drugs that may be less effective and that can actually increase Medicare spending if patients take longer to recover. Another test would provide higher payments for drugs based on how effectively they treat illnesses like heart disease or cancer.
Not surprisingly, some medical groups and pharmaceutical companies say these tests could hurt Medicare beneficiaries by limiting their access to certain drugs. But every test the administration is proposing leaves prescription decisions to doctors. And the tests would not start until medical groups, drug makers and the public have a chance to comment on the proposal.
Republican lawmakers like Senator Orrin Hatch of Utah, Representative Kevin Brady of Texas and Representative Fred Upton of Michigan are already slamming the proposal as an example of “unelected bureaucrats making decisions behind closed doors.” Under the law that governs Medicare, public officials are directed to conduct experiments that will help “improve care, increase efficiency and reduce costs.” Besides, bureaucrats came up with the current payment structure because, after all, Medicare is a government program.
The administration’s proposal is a reasonable attempt to get a handle on rising medical costs. The tests, which would take place in different parts of the country over five years, should provide valuable evidence about how changing incentives affects spending on health care.The Times calls it "financial incentives" what the more commonly applied term is "kickbacks." Doctors receive said "incentives" when they prescribe a drug not only via Medicare but via Big Pharma through speaking engagements, educational seminars in far flung all expenses paid locales, and of course lunch bearing reps who are there to assist in informing the staff of how their wonderdrug is the new super drug to fight the same disease that asprin can serve for significantly more costs.
The usual suspects are in hysteria regarding the new plan which is explained below. And while I applaud this this is equivalent to hiking Mt. Everest with a pick and prayer. Medicare is a program that is constantly battered in wind and ice storms but if you actually believe the Government would eliminate the program, think again, think hard. No but privatize it in the same manner they intend for education, it is a money maker that the succubus need to bleed to survive.
U.S. to Test Ways to Cut Drug Prices in Medicare
By ROBERT PEAR
THE NEW YORK TIMES
MARCH 8, 2016
WASHINGTON — The Obama administration said on Tuesday that it would test new ways to pay for prescription drugs in an effort to slow the growth of Medicare spending on medicines while encouraging doctors to choose the most effective treatments for their patients.
The announcement comes as presidential candidates including Hillary Clinton, Senator Bernie Sanders and Donald J. Trump are calling for government action to protect consumers against high drug prices.
Federal officials said the government spent $20 billion last year under Part B of Medicare for prescription drugs administered in doctors’ offices and hospital outpatient departments. The current payment formula provides “weak incentives” for doctors to choose the lowest-cost therapy to treat patients effectively, the administration said. Indeed, it said, the current payment formula “may encourage the use of higher-price drugs when lower-cost drugs of equivalent effectiveness are available.” Medicare payments to doctors and hospitals for Part B drugs are generally based on the average sale price of a drug and 6 percent, officials said.
The Medicare Payment Advisory Commission, an independent panel that advises Congress, said this formula “may create incentives for use of higher-priced drugs,” because 6 percent of a higher-priced medicine generates more revenue and potentially more profit for health care providers. Part B covers a wide range of drugs to treat various types of cancer, rheumatoid arthritis, macular degeneration and other conditions. Many are produced by genetic engineering or made from microorganisms or human or animal cells. Use of such “biologics” has grown rapidly in the last decade and now accounts for a majority of Part B drug spending, the administration said.
Dr. Patrick H. Conway, a deputy administrator of the Centers for Medicare and Medicaid Services, said the government would test a half-dozen alternative ways of paying for drugs under Part B of Medicare. Under one proposal, Medicare would set a standard payment rate, or benchmark, for a group of “therapeutically similar drug products.”
Pharmaceutical companies have opposed this idea, known as reference pricing, because, they say, patients with the same condition may respond differently to the same drug. Under another proposal, Medicare would pay drug companies based on how well their treatments work in patients. Payment might be linked, for example, to the effectiveness of a drug in preventing heart attacks. Yet another option would reduce or eliminate the patient’s share of the bill for Part B drugs.
Currently, beneficiaries are often responsible for 20 percent of the Medicare-approved amount for outpatient drugs under Part B. Medicare could also provide feedback to doctors, informing them how their “prescribing patterns” compare with those of doctors in certain geographic regions or in the nation as a whole. Under another alternative, Medicare would reduce the 6 percent add-on payment to 2.5 percent and pay a flat fee per drug on top of that.
Dr. Conway said the government was not infringing on the discretion or authority of doctors. “Physicians and clinicians will make the prescribing decisions,” he said. “Nothing limits the ability of physicians to prescribe the most appropriate medications.” He could not say how many of the 55 million Medicare beneficiaries would be affected by the new methods of paying for prescription drugs. Different methods will be tested in different parts of the country, he said.
The administration said it would accept public comments on the proposals until May 9.
In an apparent effort to justify government action, the Department of Health and Human Services issued a new report on Tuesday. The report estimates that prescription drug spending in the United States totaled $457 billion in 2015, or 16.7 percent of spending on personal health care services. That is higher than previous official estimates because it includes not only retail drug spending, which was counted in prior government reports, but also spending on drugs administered in hospitals and doctors’ offices.
Of the $457 billion in drug spending last year, the administration said, about $328 billion (72 percent) was for retail drugs, and about $128 billion (28 percent) was for drugs provided in hospitals and doctors’ offices, often by injection or infusion.