Incorporating drug costs into bundled payments, and allowing Medicare to negotiate drug costs, would lower costs and enhance care, says one expert. From MedPage Today.
This article first appeared November 1, 2016 on MedPage Today.
By Shannon Firth
WASHINGTON -- While health policy experts can agree that something needs to be done about increasing Medicare drug costs, they differ on how to go about managing those costs.
Medicare pays for 29% of all retail drug spending, explained Shawn Bishop, MPP, vice president of controlling healthcare costs and advancing Medicare at the Commonwealth Fund. Bishop co-moderated a recent congressional briefing on curbing Medicare drug costs.
Even though the average annual rate of spending growth across key sectors in Medicare has declined in most sectors, such as inpatient services and post-acute care, Medicare Part D spending has increased 7% per year and Medicare Part B has grown 3% in most recent years, noted Laura Keohane, PhD, assistant professor in the department of health policy at Vanderbilt University in Nashville. Keohane spoke at a recent panel hosted by the Alliance for Health Reform and The Commonwealth Fund.
What solutions are health policy experts putting forth? Gerard Anderson, PhD, a professor at Johns Hopkins Bloomberg School of Public Health in Baltimore, suggested at the panel meeting that incorporating drug costs into bundled payments, and allowing Medicare to negotiate drug costs, would lower costs and enhance care.
For example, the Centers for Medicare and Medicaid Services (CMS) did not include drug costs in its Comprehensive Care for Joint Replacement (CJR) model, a bundled payment model for hip and knee replacements. But Anderson noted that "strong clinical evidence" suggests that including drugs in the bundle could have a significant impact on pain management. Drug costs are only a small portion of the expense in CJR models, but these "baby steps" could eventually lead to inclusion in models where drug costs are more significant, such as oncology care.
Anderson also pointed to the Comprehensive End-stage Renal Disease (ESRD) payment model, which already includes Part B drug payments and some Part D drugs in its bundle, with the goal of preventing their overuse.
While he acknowledged difficulties, such as determining which drugs to include, and how much to pay in such a bundle, the ESRD model showed including pharmaceuticals in a bundle is "doable."
Anderson also touted Medicare price negotiation as a second vehicle for reining in the rising expense of catastrophic spending in Medicare Part D.
After meeting a certain catastrophic benchmark, Medicare currently pays 80% of Part D drug costs while private insurers pick up 15% and beneficiaries are responsible for 5%, Anderson explained. The Medicare Payment Advisory Commission (MedPAC) has suggested flipping these responsibilities: Holding Medicare responsible for 15%, and private insurers for 80% of drug costs. MedPAC argues with more on the line, private insurers would be incentivized to negotiate lower prices with manufacturers.
However, Anderson acknowledged that this approach could lead to access issues, as some Part D plans might exclude people with multiple chronic conditions, out of concern for the high costs they would incur.
But Medicare could negotiate the price of any drug over $7,500, because such high costs immediately place payments in Medicare's catastrophic threshold, where it pays 80% of costs, he said.
Anderson said he believes that by "means testing" the Part D program, instead of scrapping it, CMS could ensure that only the wealthiest beneficiaries would pay for drugs passed that threshold. This kind of value-based pricing is what's done in the U.K. through the National Institute for Health and Care Excellence for the last 30 years, he said.
But whether such cost-saving measures would pass muster with government accountants is another matter. The challenge with a lot of the government price negotiation proposals, is that they aren't likely to meet the Congressional Budget Office's criteria for saving money, noted Mark McClellan, MD, PhD, director of the Margolis Center for Health Policy at Duke University.
McClellan said one reason these plans fail is that they don't give CMS, or an entity within the agency, any real authority to tell a patient it won't cover a drug.
"Setting up an entirely new government entity that would have real authority to restrict access to drugs seems challenging," he added.
But Anderson stressed that he doesn't want to limit access to drugs. "What I want to do is say 'The value of this drug is X. This is how much we're willing to pay for it.' If pharma doesn't want to sell it for X, that's their choice," Anderson said, adding that value-based pricing would only apply to very high cost drugs.
McClellan expressed skepticism, and said the suggestion by MedPAC for making drug plans "more sensitive" to drug costs seemed a more practical first step.
But McClellan did agree with Anderson to some degree, that incorporating drug costs into new models, such as advanced alternative payment models (APMs) could help to lower such costs.
In the same way providers contract with post-acute care organizations, sharing risk and upside benefit in advanced APMs, McClellan argued that having manufacturers share risk with providers could improve care and lower costs.
Such models would require changes to anti-kickback rules and off-label communication, because sharing data between manufacturers and providers on factors such as medication adherence, would be important.
"I think it's a different way, without having to disrupt the whole Part D structure, to get at the same goal," McClellan stated.