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Medicare Proposes Radical Experiment in Drug Payment Policy

On March 8, 2016, the Centers for Medicare and Medicaid Services (CMS) released a proposed change in payment policy for physician-administered drugs. This project was developed by CMS’ Centers for Medicare and Medicaid Innovation and will affect more than half the country because the policy mandates participation.

Currently, Medicare pays for physician-administered drugs at a payment rate that is equal to 106% of Average Sales Price (ASP), which is calculated by the manufacturer and covers all purchasers of the drug. An individual physician practice or hospital may be able to acquire the drug at a higher or lower price than 106% of ASP but the payment rate is the same regardless. These payments are separate from those made for the administration of the drug. This payment policy has been criticized by some for offering an incentive to provide a higher priced drug. 

This new payment policy will change the payment policy for physician-administered drugs. It will be conducted in two phases, with the first scheduled to begin in the fall of 2016. The first phase will randomize each of the 7,000 “primary care service areas” into two groups. Half of these areas will continue with the existing payment policy. The other half will have physician-administered drugs paid at 102.5% of ASP plus $16.80. This will mean that the payment for inexpensive drugs (those under $480) will be paid at a higher rate and payment for expensive drugs will decrease. Because hematologists are more likely to provide expensive infused drugs than many other specialties, the overall effect of such a proposal would be a reduction in payments. For physicians that provide many low cost drugs, such as primary care physicians, overall payments would increase. 

The second phase of the new payment policy would further sub-divide the two groups so that four different payment policies are established. The new division would be based on the ability of Medicare to use innovative payment policies that might deviate from the current ASP policy. Such innovative policies could be paying on the basis of indications (paying more for a drug for a certain cancer for which it is more effective), a least costly alternative (establishing payment rates for new equivalent drugs based on the current standards) and other policies. To the extent that drugs were not affected by these new payment policies, they would continue to be paid on the basis of the existing ASP policy (either 106% of ASP or 102.5% of ASP, depending on the region). The second phase would begin at some time in 2017.

This is a major policy shift for Medicare. Reducing the payment made for infused drugs is likely to have a significant effect on the viability of hematology practices, particularly those that remain in a private practice environment. The new innovative payment policies could prove cumbersome or prevent patients from receiving certain treatments. These policies could also reduce costs for patients and steer them towards more appropriate treatment. ASH will offer comments on this proposed new payment policy before the May deadline and will continue to update members on this proposal.