Over Before It Started: CMS Abandons New Payment Pilot

By Zack Buck

With little fanfare, last month, the Centers for Medicare and Medicaid Services (CMS) abandoned its proposal to begin a payment pilot in which Medicare Part B would change the way it pays for pharmaceutical drugs.  As I blogged about last March, under the proposed pilot, providers’ payments would be changed from the Average Sales Price (ASP) plus 6 percent of drugs’ costs (ASP+6), to ASP plus 2.5 percent of the drugs’ costs plus a flat fee per drug per day (of $16.80). This new proposed pilot would have been time-limited, and would have allowed officials to observe the effects of such a reimbursement change on prescribing patterns in an effort to cut Medicare’s substantial drug costs.

Following an outburst of negative reaction from Medicare’s providers, the pharmaceutical industry, and Congress (including the new nominee to be Secretary of Health and Human Services Tom Price), CMS announced in December that more than 1300 public comments were submitted in reaction to the proposal.  And following November’s election and the public comments shared with CMS, the agency announced that it had decided that “the complexity of the issues and the limited time available led to the decision not to finalize the rule at this time.”

As I have discussed before (here and here), the current Part B payment regime incentivizes inefficient behavior within the Medicare program. This reimbursement scheme not only incentivizes physicians to rely on more expensive pharmaceutical drugs (by awarding them a higher profit for relying on more expensive drugs), but it can encourage pharmaceutical companies to price their drugs higher.  But last spring, powerful critics in Congress argued that changing the reimbursement formula through this pilot could negatively affect access to health care for Medicare beneficiaries, and their negative reaction, coupled with November’s election results, persuaded CMS to pull the plug on the pilot.

This proposed pilot had, for once, seemed to signify a new era in cost control that took seriously the importance of redirecting incentives regarding the costs of pharmaceutical drugs that are borne by taxpayers and Medicare beneficiaries. Its abandonment represents yet another example of action by a Congress that is seemingly unwilling to make the changes necessary to cut excess cost from the American health care system.

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