In a press release on March 8, the Centers for Medicare & Medicaid Services announced a proposal to test new drug cost and reimbursement models with the goals of improving quality of care to patients and creating a better value for prescription medications. This experiment would take place over a five-year period, testing out different types of value-based pricing in various regions around the country.
Standard Medicare Drug Coverage
Value-Based Drug Pricing
Following deals that private insurance companies have put in place with pharmaceutical manufacturers, Medicare has put forth a proposal to try what some call value-based pricing in an effort to help save on drug costs. Value-based pricing is the idea that the drugs that yield the best health results for patients should reap greater financial rewards than they currently do.
For instance, some cancer drugs cost tens of thousands of dollars, but they don’t do much for the patient’s condition and their quality of life. On the other hand, there are drugs that are lower cost with obvious health benefits, such as basic diabetes medications or blood pressure drugs. Medicare would pay prescribing physicians and facilities more for effective drugs while reimbursing them less for the ineffective ones.
Cutting Fees & Lowering Patients’ Drug Costs
The experiments mentioned in the proposal involve cutting add-on fees, leveling drug prices by condition and ultimately reducing costs to the patient. Many outpatient facilities and hospitals purchase medications before prescribing them. Medicare then reimburses these facilities for purchasing the medications plus an add-on fee of 6%. The new proposal would cut these add-on fees down to 2.5%. Along with cutting these fees, Medicare proposes to level the prices of all drugs by category. For instance, all oral beta blockers used to treat hypertension may have a flat rate. Doctors and hospitals may then get reimbursed more for those medications based on how successful they are for treating the patients. This will also incentivize doctors to provide more feedback on patients’ progress with certain medications and follow up with results.
Under Medicare Part B, patients currently pay 20 percent of the cost of their prescription medications. Under the proposed value-based pricing, costs would fall for patients for successful medications, and Medicare is proposing to pick up what is left of the tab to incentivize patients who really need medications that are proven to be effective and reduce healthcare costs in the long term such as certain blood pressure and diabetes drugs. In order to make this possible, Medicare would also enter into agreements with some drug manufacturers in order to tie outcomes to price adjustments.
The results of these proposed drug cost and reimbursement experiments could determine the costs of drugs under both Medicare and Medicaid for decades to come.