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Physician Fee Schedule: CMS to Trim Part B Add-On for New Drugs

Analysis  |  By Steven Porter  
   July 12, 2018

The proposed change for 2019 would reduce the wholesale acquisition cost add-on from 6% to 3%, decreasing the amount of money Medicare and beneficiaries pay for in-office drugs.

The Centers for Medicare & Medicaid Services announced a series of proposed changes Thursday to Medicare's physician fee schedule for 2019 promising, among other things, to advance the Trump administration's commitment to lowering prescription drug prices.

Included in the proposal is a significant reduction in the amount Medicare pays physicians for new prescription drugs. Rather than calculating reimbursement by adding 6% to the wholesale acquisition cost (WAC) for drugs and biologics, CMS would pay physicians WAC plus 3% effective January 1.

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The proposal would not affect payments that are required by law to be calculated at the volume-weighted average sales price (ASP) plus 6%, according to the proposed rule.

Beyond reducing Medicare's fee-for-service expenses, the reduction would also decrease copayments for Medicare Part B beneficiaries, according to the proposal.

"The proposed approach would help Medicare beneficiaries afford to pay for new drugs by reducing out of pocket expenses and would help counteract the effects of increasing launch prices for newly approved drugs and biologicals," the proposal states.

Asked about the impact the cut would have on providers, CMS Administrator Seema Verma said during a press call Thursday that the agency will listen to feedback as the rulemaking process moves forward.

"This is a proposed rule, so we are going to continue to work with providers and stakeholders and continue to have dialogue around their response to the rule," Verma said.

  • Recommended by MedPAC: In support of its proposal, CMS noted that the Medicare Payment Advisory Commission recommended the reduction in its June 2017 report to Congress.
  • Expected to curtail spending: Medicare Part B drug spending increased from $17.6 billion in 2011 to $28.0 billion in 2016, while per-capita spending increased 54%, according to CMS data. "These increases affect the spending by Medicare and beneficiary out-of-pocket costs," the proposal states. "In the context of these concerns, we believe that implementation of these proposals will improve Medicare payment rates by better aligning payments with drug acquisition costs, especially for the growing number of drugs with high annual spending and high launch prices where single doses can cost tens or even hundreds of thousands of dollars."
  • Why 3%? "Although other approaches for modifying the add-on amount, such as a flat fee, or percentages that vary with the cost of a drug, are possible, we are proposing a fixed percentage in order to be consistent with other provisions [of the law] which specify fixed add-on percentages" of 6% or 3%, the proposed rule states. "A fixed percentage is also administratively simple to implement and administer, is predictable, and is easy for manufacturers, providers and the public to understand."
  • AHA uneasy: Tom Nickels, executive vice president of the American Hospital Association, released a statement expressing unease over the reduction in payment for certain new drugs: "[W]e believe CMS should instead address the skyrocketing list prices of drugs directly with pharmaceutical manufacturers," he said. 

Verma made a point during Thursday's call to mention that more drug-pricing related changes are on their way.

"When it comes to lower drug pricing, you're going to see many initiatives that come out from the administration," she said. "This is certainly not only one thing that we will be doing. With upcoming announcements, I think you'll be able to see some of the things we're doing on this."

Public comments on the proposed physician fee schedule will be accepted through September 10.

Editor's note: This story has been updated to include a comment from the American Hospital Association.

Steven Porter is an associate content manager and Strategy editor for HealthLeaders, a Simplify Compliance brand.

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