Medicare Part B mostly covers hospital out patient expenses. There is a small cluster of drugs that Medicare Part B covers. One of those drug categories is injectable drugs. Medicare Part B has announced a major reform of how it pays doctors for injectable drugs.
Medicare is going to test new ways to reimburse doctors for medications, in hopes they’ll choose less expensive drugs.
The plan would alter Medicare Part B, which pays for medicines administered in doctors offices or outpatient hospital clinics — to eliminate incentives for doctors to use the most expensive drugs….
The program now reimburses the doctors or clinics for the cost of the medication plus a 6 percent fee. That means doctors and hospitals earn more money when they use pricier drugs….
The agency plans to test a reimbursement formula that would pay the cost of the drug, plus a 2.5 percent surcharge and a flat fee of $16.80.
One of the shining examples is a pair of drugs used to treat age related wet macular degeneration, an eye disease that leads to blindness. Avastin and Lucentis have been shown to have very similar results. Avastin costs around $50 a dose while Lucentis costs around $2,000 a dose. Under the current payment model, a doctor administering Avastin is paid $3.00. The same doc administering Lucentis to the same patient gets paid $120. There is a strong incentive to prescribe the more expensive drug. Under the new model, Avastin would lead to a payment of $18.05 while Lucentis would have a payment of $66.80. There is still an incentive to overprescribe Lucentis relative to Avastin but it is a much weaker one. And that incentive can be further wrung out as more of the Medicare population is moved into either Accountable Care Organizations or other value based payment methodologies are used.
Pharmacy Executive in November 2014 made a horrendously poor but facile argument that there were no financial incentives influencing prescribing Avastin versus Lucentis:
Alternatively, do ophthalmologists who administer Lucentis appear to be doing so because they are exercising medical judgment on a patient-by-patient basis and concluding that Lucentis is the best choice in certain instances?
To investigate these competing hypotheses, we focus on ophthalmologists who tend to use these drugs frequently, because these are the type of high-billing doctors that are the focus of the articles in the popular press. Specifically, we limit the data to ophthalmologists with 200 or more patients who received injections of these drugs over the course of 2012. 547 ophthalmologists meet this criterion and are included in our analysis. Across these high-volume doctors, 11% only administered Avastin to their patients, 19% only administered Lucentis, and 70% administered a mix of the two drugs to their patients—Avastin to some patients and Lucentis to others. This finding is certainly consistent with the second hypothesis above.
Splitting the prescribing universe into three chunks; Avastin only, both drugs, Lucentis only prescribers we can categorize them as very cost conscious, potentially cost conscious with a reflection that there may be clinical judgment occurring, and profiteering.
The entire goal of a payment reform is to eliminate or at least significantly reduce the motive and ability to profiteer. It is not to change the entire behavioral profile of a profession but to reduce the tail of providers that seem to be exploiting the system. If Pharmacy Executive was to run the same study with 2019 data, payment reform would be successful the 19% prescribing Lucentis decreased to a miniscule fraction and shifted to a mix prescription profile. The payment methodology still makes prescribing Lucentis more profitable than prescribing and administering Avastin but the gap is smaller and administering Avastin is not a guaranteed loss.
Most payment reform models will have an impact at the edge cases and not the middle cases. The savings and the behavioral changes that lead to better health at lower cost are more likely to come from trimming an extreme rather than moving the average case by a smidge.
Gimlet
Medicare Part B mostly covers hospital expenses
Part A is hospital.
Part B covers health care providers and outpatient expenses.
Richard Mayhew
@Gimlet: Thank you, corrected as this was written pre-coffee.
Eric U.
under the new scheme, the doc gets paid less $20 for administering the $50 drug and $60 for the $2000 drug. Not sure this is going to help that much
Richard Mayhew
@Eric U.: It does totally remove the incentive to overprescribe. However it changes Avastin from being a pure money loser to a break even proposition and it reduces the Lucentis fee in half. The spread is now $40 instead of $115… it helps at the margins
japa21
@Eric U.: The money Richard is referring to is the profit margin. Figure cost of the drug plus the amount Richard states as actual payment.
Karen
I just saw a commercial claiming that cuts are being made to Medicare Advantage. Is this new scheme these cuts? I’m only 50 but I have Medicare because of disability.
Wag
@Eric U.:
If docs have less incentive to prescribe the higher cost drug then they will be less likely to jump through the administrative prior authorization hoops to use it. When there is a larger pay differential it makes sense to hire someone to push through the prior auths. Less money, lower return on hiring that PA specialist.
Richard Mayhew
@Karen: Nope, this is unrelated to Medicare Advantage payment policies.
dr. bloor
Why no flat fee for medications within a particular class/designated for the same condition? The procedure is the procedure, regardless of what’s in the IV bag or syringe.
Same silliness goes on in mental health. 45 minutes of psychotherapy, three different pay scales based on degree. Mrs. Dr. Bloor takes down about $20 less per session than I do ONLY because she’s a licensed social worker and I have a Ph.D. Trust me, you’d *much* rather be in treatment with her than with me.
japa21
@dr. bloor: Now you are trying to use common sense. That is not allowed in these things.
Richard Mayhew
@dr. bloor: Flat fee or reference pricing is round 2 of the reform process and rule making.
I can see a bit of an argument for some percentage based fee as there are some carrying costs of having a drug in stock. If the percentage fee is effectively the cost of capital/short term credit that would be a “fair” payment
AnonPhenom
Ok, OT. This is kind of funny.
MSNBC (Hayes) is interviewing Grayson (after a segment with Josh Fox on fracking), when two people obviously having a ‘moment’ walk into the camera shot.
They’re gonna be the talk of the office today.
japa21
@dr. bloor: Having been in that field, I know what you mean. I am a licensed clinical counselor, pretty much at the same level as your wife (although SW’s would argue the point. I guess the extra payment is to cover all the extra education you had to have.
Mental health is one of those weird fields where it is very hard to actually determine the efficacy of treatment. A somewhat well know psychologist once did an experiment where he acted as a patient and went to quite a few practitioners at various levels. His findings were that, in terms of therapy, not medicine, level of practitioner didn’t make a difference. Furthermore he felt that it was evenly split. About 1/3 actually are a benefit to the patient, 1/3 don’t make a difference one way or another, and the final 1/3 could well be a detriment. Obviously, that was based upon his own personal biases and I doubt the actual numbers would be that evenly split.
Barbara
It might help to remember that the current reimbursement itself was configured to remove an even bigger incentive under the prior reimbursement system to “maximize the spread” between what the physician paid for the drug, and the reimbursement of the drug under the AWP. The spread was pure profit and companies tried to incentivize physicians to use one drug over another by “marketing the spread.” I cannot delve too deeply here, but when this system was changing I happened to be sitting next to an oncologist at a dinner who spent the entire night whining about how this change was going to reduce her group’s annual profit from cancer drugs by $300,000 (a lot of which, she said, they used to subsidize the cost of drugs for indigent patients). In addition, she maintained far more credibly that the fees paid by Medicare for their professional services did not cover actual costs, and the group had been justifying greater Medicare participation because they could make up the deficit through the reimbursement for drugs. This is the aspect of American medicine that I find to be utterly maddening.
jl
@Barbara: I agree with the ‘maddening’ part. Trying to get to more price and economic cost transparency for drugs, tests and labs needs to be tackled for US health care. I don’t see much progress on that front in terms of proposed policy.
Doug
Not speaking to the general principle, but I believe that neuropathic AMD is an off-label use for Avastin.
Richard Mayhew
@Doug: yep
Doug
And so prescribing Avastin in that indication is not unproblematic, while advertising it is a big screaming no-no that can cause the FDA to land square on your head.
The internet, in its infinite wisdom, tells me that the patent for Lucentis expires in 2020 in the US and 2022 in Europe. So there’s a time frame for how much longer the price differential is likely to last.
Barbara
@Doug: Avastin and Lucentis have the same active ingredient. The manufacturer played the rules like a fine violin to put the drugs in the position of not being substitutes for one another. It has also tried to punish providers that purchase Avastin to use for the same thing that Lucentis treats.