The Centers for Medicare and Medicaid Services (CMS) recently released a proposal to restructure the way Medicare reimburses physicians for Part B drugs. The California Medical Association (CMA), along with the American Medical Association (AMA) and other medical associations and patient organizations, are urging CMS to reconsider the proposal, as it fails to address the underlying causes of rising drug costs, reduces the amount of payment to physicians and increases patient cost-sharing. Patients served by practices that are small, rural or located in economically disadvantaged areas could be disproportionately affected.

Although CMA and AMA share the concern that rising drug costs could make life-extending therapies unavailable to a growing number of patients, we do not accept CMS’s assumption that this problem can or should be solved by reducing Medicare reimbursement to physicians who purchase and administer those drugs and have no influence over their prices.

Today, Medicare reimburses physicians and hospitals for the cost of Part B drugs at a rate tied to the average sales price (ASP) for all purchasers – including those that receive large discounts for prompt payment and high-volume purchases – plus a percentage of the ASP. Currently the percentage add-on is 6 percent, which is then reduced to 4.3 percent under the budget sequester enacted in 2011.

Under the new proposal, CMS would retain the current rates in some communities, while in other communities it would set a reduced rate of ASP+2.5 percent in addition to a $16.80 flat fee. After the sequester is factored in, the add-on in the demonstration areas would be 0.86 percent of ASP plus $16.53. Five additional “value-based” drug payment strategies are on tap for implementation in specified localities next year or later. As a result, Medicare payment policy would remain unchanged in some communities, while multiple changes could be applied in others.

Because the ASP includes payments that were heavily discounted to reflect volume, prompt pay and other such adjustments, it does not reflect the true prices paid by many physician practices with relatively low-volume purchases. Even with the current 4.3 percent add-on, Medicare reimbursement may not cover actual costs, especially for practices that face high wholesaler fees or state and local drug taxes, which are not counted in the ASP.

CMA and AMA also take issue with the underlying premise of this demonstration – i.e., that physicians may choose their patients’ drug therapy based on the drug with the highest reimbursement to the physician. The Medicare Payment Advisory Commission (MedPAC) looked at that question and concluded that there is little evidence to support this premise. CMS also cannot offer evidence of significant abuse. And, as noted in recent MedPAC discussions, many factors other than reimbursement drive physician drug choice.

The heart of the problem here is drug prices. Manufacturers control these, not physicians. Moreover, as many physician could no longer afford to provide these drugs in their offices, the administration of these drugs would shift from physicians’ offices to hospital outpatient departments, which would increase costs for both patients and the Medicare program.

Also concerning is that CMS did not share or discuss specifics of the newly proposed drug reimbursement demonstration with the hospital and physician community prior to publication in a proposed rule. In addition to the logistical challenges of this proposal, the planned implementation dates do not provide time for adequate outreach, education and preparation for physicians and patients in the affected areas.

Given the many unintended and negative consequences that could result from implementation of the current proposal, organized medicine is working to identify solutions that focus more directly on the goal of reducing drug costs and spending.

Read the letter CMA co-signed with AMA here.