Part B Payment for Medicare Drugs

Evidence Driven Drug Pricing Project
April 11, 2016

A new analysis sheds light on why proposed changes to the system are being met with opposition and what they could mean for providers and patients.

The team, led by Dr. Peter B. Bach, present empiric information that find:

1) There are large price differences between clinically effective cancer treatment options. Under the current payment model, doctors and hospitals earn much larger gross profits from Medicare when they choose the more expensive option which increases costs to Medicare and to patients with cancer. Under the proposed formula the profit incentive for using expensive treatments is still there, but much smaller. An example in lung cancer shows that doctors and hospitals can earn more than $1,000 by choosing a more expensive treatment under the current model, the new model reduces that to $500.
2) The overall cost to the healthcare system from the system that pays profits to doctors and hospitals based on the price of Part B drugs amounts to 49% over and above the cost of the drugs themselves. This analysis takes into account varying types of insurance (Medicare, private plans, Medicaid) and discount programs –vastly more than the 6% Medicare gross allowed profit. Gross profits for hospitals are substantially higher on average than for doctors.
3) Under the proposed pilot, approximately half of drugs used by doctors will have the associated profits increased compared to the current formula, the other half will deliver lower profit. An analysis focused on hospitals is still underway. This means the impact of CMS’ proposed payment change would allow for many less expensive drugs to see larger profits but there are a few very expensive drugs at the upper range where aggregate profits will be severely curtailed.
Please find Dr. Bach’s study here.