Unbiased Analysis of Today's Healthcare Issues

Part B drug reimbursement

Written By: Jason Shafrin - Apr• 18•16

In the past Medicare has reimbursed physicians that administer Part B drugs–typically injectable medications administered in a physician’s office–at 6% of the drug’s cost.  The 6% aims to cover the cost of purchasing and storing the drug as well as administering it.  Because physician reimbursement is proportional to the cost of the drug, physicians have an incentive to select more expensive treatments.

A recent CMS proposed rule aims to change physician reimbursement for administering Part B drugs.  CMS states:

Medicare Part B generally pays physicians and hospital outpatient departments the average sales price of a drug, plus a 6 percent add-on. The proposed model would test whether changing the add-on payment to 2.5 percent plus a flat fee payment of $16.80 per drug per day changes prescribing incentives and leads to improved quality and value. The proposed change to the add-on payment is budget neutral.

Oncologists are not happy with the change. MedPageToday reports the Bruce Gould, MD, president of the Community Oncology Alliance wrote in a letter to CMS that:

The proposed payment model “is an inappropriate, dangerous, and perverse mandatory experiment on the cancer care of seniors who are covered by Medicare.”

The question is, what is the right number?  Physician costs to administer drugs have both a fixed and variable component.  The fixed component is likely the time and labor cost to administer a drug likely does not depend on drug price.  The cost of capital tied up in purchasing a drug and the risk that the drug is not used, however, are certainly proportional to price.  Having a fixed and variable component to pricing does make sense.  However, a $16.80 price to administer a drug seems very low.  The reasonableness of the 2.5%.

MedPAC analyzed the benefits and cost of moving entirely to a flat fee system for physician reimbursement of administering Part B drugs and found:

It might increase the likelihood that a provider would choose the least expensive drug in situations where differently priced therapeutic alternatives exist, potentially generating savings for Medicare and its beneficiaries. At the same time, a flat-fee add-on might create other incentives that could increase spending. For example, questions have been raised about whether increased payment rates for very inexpensive drugs might create incentives among some providers to overuse these drugs or spur manufacturers of low-priced drugs to raise their prices.

The “appropriate” reimbursement rate may even vary across drugs.  Further research is needed to better understand the implications of changing physician reimbursement for administering Part B drugs to ensure that both cost savings and patient access to high quality medications are achieved to the greatest degree possible.

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