Proposed Reductions to Medicare Drug Payments Will Hurt Patients, Small Practices

Jessica Miller

July 2016, Vol 7, No 6 - Health Policy

Opposition to proposed changes to the Medicare Part B payment for prescription drugs continues to grow since the Centers for Medicare & Medicaid Services (CMS) announced its plan in March 2016.

Bipartisan support from every member of the Senate Committee on Finance and more than 300 members of the House of Representatives have joined clinicians, patient advocates, and drug makers in questioning the new rule, which, CMS anticipates, will slow spending on prescription drugs.

The proposed rule would lower the current add-on payment to physicians and hospital outpatient departments for prescribed drugs from the 6% average sales price to 2.5%, plus a flat fee of $16.80 per drug daily.

CMS contends that under the current system, physicians are rewarded for selecting higher-cost drugs when equivalent lower-cost drugs are available. However, oncology stakeholders worry that the proposed cuts in payment will limit patient access to individualized targeted cancer treatments, which often do not have lower-cost alternatives.

“We are concerned that, as currently proposed, the demonstration does not protect cancer patients’ access to the life-saving drugs needed to treat their disease,” the American Cancer Society Cancer Action Network (ACS CAN) wrote in a letter to Sylvia Mathews Burwell, Secretary of Health & Human Services.1 The proposed rule “focuses more on the potential for cost savings” rather than on ensuring that “the quality of care for Medicare beneficiaries is preserved or enhanced,” ACS CAN added.1

ACS CAN also fears that a significant reduction in reimbursement for some cancer drugs under the new payment system will be difficult for small practices to absorb, potentially forcing patients to seek care at larger, more expensive hospital systems.

House Members Weigh In on Medicare Payment Proposal

House Republicans echoed this sentiment at the House Committee on Energy and Commerce, Subcommittee on Health hearing that was held in May 2016, where they suggested that the proposed model would disproportionately impact small and rural providers who do not have the same drug negotiating powers as larger practices.

This first phase of the new payment system could take effect as early as August 2016. The second phase of the proposed rule could begin in early January 2017, and would implement value-based pricing (VBP) tools, such as eliminating patient cost-sharing, testing indication-based drug pricing, and setting reference pricing for therapeutically similar drugs. Phase 2 has similarly drawn concern from stakeholders.

“As CMS considers implementing the VBP tools, we urge the agency to balance the impact of the tools with advancements in treatments based on personalized medicine, including treatments based on genetic information, and issues related to side-effects and drug-to-drug interactions,”1 ACS CAN wrote.

CMS will actively evaluate the proposed model to ensure that it is working as intended.

“The criteria for a successful model will be whether it reduces net Medicare spending, without limiting coverage or benefits, while maintaining or improving patient care. CMS plans to implement a concurrent real-time claims monitoring program to track utilization, spending, and prescribing patterns as well as changes in site of service delivery, mortality, hospital admissions, and several other high-level claims-based measures,”2 CMS stated.

Although opposition is wide, the proposal is not without endorsement. At the May hearing, Jan Schakowsky, representative from the state of Washington, highlighted the need to address high drug prices. “Every time we attempt to do anything to rein in drug costs we are met with fierce opposition. We are actively reforming every other aspect of our health care system to pay for value except pharmaceuticals,” he said.3


  1. US House of Representatives. American Cancer Society Cancer Action Network letter to Sylvia Mathews Burwell. Accessed June 21, 2016.
  2. Centers for Medicare & Medicaid Services. CMS proposes to test new Medicare Part B prescription drug models to improve quality of care and deliver better value for Medicare beneficiaries. March 8, 2016. Accessed June 21, 2016.
  3. US House of Representatives, Energy and Commerce Subcommittee on Health. Hearing on Medicare drug experiment: the patient and doctor perspective. May 17, 2016. Accessed June 22, 2016.