MedPAC Commissioners Mull Proposals to Change Part B Drug Payment

WASHINGTON — Members of the Medicare Payment Advisory Commission (MedPAC) spoke up Friday in favor of considering new approaches to the way Medicare pays for Part B drugs.

“I think we’re going in the right direction,” said commissioner Gary Poulsen, MBA, of Intermountain Healthcare in Salt Lake City, Utah. “I think this is an improvement.”

Having grown from previous commission discussions on the topic, Poulsen was referring to proposals presented at the commission’s September meeting by MedPAC principal policy analyst Nancy Ray, MS. Ray noted that price has been the largest driver of Part B spending growth, with Medicare spending $40.7 billion on Part B drugs in 2020. And that spending is highly concentrated, with 52% coming from just 20 drugs.

Currently, Medicare pays for Part B-covered drugs — those dispensed in physician offices or other outpatient facilities — based on the average sales price (ASP) of the drug plus a 6% administration fee. The MedPAC staff proposed an alternative in which Medicare would pay the ASP plus the lesser of three options for the administration fee: 6%, 3% plus $21, or $175 per drug per day. This approach, Ray said, converts a portion of the “percentage” part of the administration fee to a fixed fee ($21) in one instance and caps the administrative add-on fee for lower-priced drugs at 6% and for higher-priced drugs at $175. She noted that the numbers were illustrative and that other numbers could be considered.

Using this formula would reduce the differences between drugs in administrative add-on fees, and would result in the biggest fee reduction for the higher-priced drugs. For example, a drug with an ASP of $15,000 would have an add-on fee of $900 under the current formula, but under the proposed alternative, that figure would be $175, Ray said.

Ray also outlined options for using reference pricing in cases where higher-priced drugs have a lower-priced therapeutic alternative. Currently, the economic incentive is to select a higher-priced drug that will result in a larger reimbursement because the administrative fee is based on a percentage of the drug’s price. Ray presented three alternative options for payment, based on:

• Lowest ASP of the products in the reference group
• Volume-weighted ASP of all products in the reference group
• Lower of the volume-weighted ASP and the ASP of the drug being administered

These options would generate savings for beneficiaries and taxpayers, she said.

Commissioner Robert Cherry, MD, of UCLA Health in Los Angeles, expressed concerns about one idea Ray mentioned in the reference pricing proposal: that Medicare could consider whether Medigap policies could cover the costs for drugs whose prices were higher than the reference price.

“My concern with that is just from an equity perspective, whether that’s actually a viable solution or not,” he said. “Because in order to purchase those Medigap private supplemental policies, you have to be able to afford those, and so it sort of excludes another population of beneficiaries that could not necessarily benefit from appropriate drugs and therefore their provider may not be able to order it.”

Commissioner Stacie Dusetzina, PhD, of the Vanderbilt University School of Medicine in Nashville, seconded that point:”I really dislike the idea of requiring coinsurance for beneficiaries in that case; I think we should remove the reference to beneficiaries paying a little bit more.”

Dusetzina said she “fully endorsed” the reference pricing model for biosimilars and biologic drugs. “I think that’s exactly where we should go,” she said. However, “the other therapeutic alternatives piece is more complicated and figuring out how we define what gets to be counted as a substitute. I think it makes that part a little bit trickier, but I’m in support of that plan.”

During her presentation, Ray also addressed the question of what to do about drugs such as aducanumab (Aduhelm) that have been approved by FDA but are thought to have an uncertain clinical benefit. One idea in this area would be to cap payments for such drugs until a confirmatory trial shows a clinical benefit.

Commissioner Scott Sarran, MD, of MoreCare in Cook County, Illinois, reflected on the way Medicare is covering Aduhelm as part of its coverage with evidence development (CED) program; Medicare only pays for the drug for patients who are enrolled in an Aduhelm clinical trial, although there is no set deadline for completing the trial.

“I wonder whether the best approach is to encourage CMS to apply CED more often than they previously have and recommend they do it with real defined time frame, beyond which [the agency] would refuse to cover it under any circumstances,” he said.

Commissioner Lawrence Casalino, MD, PhD, of Weill Cornell Medical School in New York City, said he was “very enthusiastic” about both the reference pricing recommendations and also about changing the current ASP-plus-6% reimbursement formula. He downplayed concerns that these payment changes would make drug companies less interested in developing new treatments.

“Pharmaceutical companies are extremely profitable and have incentives to innovate,” he said. “I’m not sure pharmaceutical companies wouldn’t continue to innovate if they were a little less profitable.”

But commissioner Marge Ginsburg, BSN, MPH, of the Center for Healthcare Decisions in Sacramento, California, disagreed, urging caution about those proposals.

“What happens, as we all know — Big Pharma rises up, and the public rises up because the public gets infuriated to think we’re going to stop innovation by these Draconian measures to cut costs,” she said. “I do think we need to be careful…I’m very excited about the approaches we’re talking about, I just want to make sure that we are very aware of the power that Big Pharma has over the general public.”