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Azar Discusses Proposed Changes to Medicare Part B

— May 24, 2018

Azar Discusses Proposed Changes to Medicare Part B

Department of Health and Human Services Secretary Alex Azar said physicians need to get out of the business of making money off of providing prescription drugs to Medicare beneficiaries.  Under the current system, doctors who administer drugs paid for under Medicare Part B fund for these drugs up front and are reimbursed at the average sales price plus a six percent markup.  This “gets into the notion of physicians or facilities making money off the arbitrage between the acquisition price and reimbursement,” Azar explained.

Instead, the agency is proposing a “competitive acquisition program” for Part B drugs, according to Azar.  He added, “The concept of the competitive acquisition program is not to have physicians take title to the medications they’re administering, but rather, have a competitive program where those drugs would be purchased, and the capital outlay would occur elsewhere,” so a doctor doesn’t have to buy the drug and is offered “a fair, appropriate level of reimbursement for their services in administering the drug.”

Azar said, “We believe the market has developed sufficiently in terms of the power and scale of group purchasing organizations, specialty pharmacies, specialty distribution [companies] and pharmacy benefit managers that there are now plenty of players in the space compared to when this was tried over a decade ago.”  Current participants “could actually execute a program like this well, secure substantial discounts, and work effectively with physicians for whom the ‘buy-and-bill’ model doesn’t make sense, and that’s even assuming it’s done as a voluntary program.”

Photo by Allef Vinicius on Unsplash

The Part B reimbursement system is broken in other ways, too. “Right now, in Part B, essentially as soon as a drug is approved by the FDA, it’s covered,” Azar explained.  “Medicare gets a bill for the drug, composed of the standard price plus a 6% markup, and we pay it.  Compare that with the negotiation in Part D: Plans determine whether a drug should be covered or whether an alternative is superior. Plans negotiate discounts, rather than just paying full price.”  He added, “You can imagine what happens when you’re developing a drug.  It’s often much more appealing for the drug to go into Part B than D.”

With doctors buying the drugs themselves and then waited to be reimbursed, “Some of the price tags are approaching half a million dollars, which is also an issue for physicians if they don’t want to make that investment up front,” said Seema Verma, administrator of the Centers for Medicare & Medicaid Services. “[And] I don’t think part B envisioned paying 6% on top of a half-million-dollar drug.”

HHS officials also are considering moving some or all Part B drugs into the Medicare Part D.  Azar explained, “One approach is to move them all [into Part D, but we are also] going to be conducting an up-to-date study of U.S. pricing and negotiations for Part B drugs, and we might highlight drugs where we are getting a worse deal compared to other industrialized nations.”

They may also begin “to focus on classes where there are drugs within [parts] B and D with a high spend where it would be particularly fruitful to combine B and D to get rid of any perverse incentives around prescribing behavior,” according to Azar, who added, “You’ve probably heard before that Medicare could save tons of money by negotiating directly for drugs.  This just isn’t true, and you don’t have to take my word for it.  The Congressional Budget Office found [several years ago] that the idea of direct negotiation would generate almost no savings.  The same conclusion was reached by President Obama’s Office of Management and Budget when it assessed the proposal in his budget.”


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