Stat News has a report from last month on opposition to the Medicare Part B drug payment reform scheme that highlights the challenge of any reform effort that attempts to line incentives up to more cost effective but clinically similar care.
Under the Part B program, doctors, and hospitals buy a medicine, and the government reimburses the average sales price plus 6 percent. But the experiment, which would run five years starting this fall, would pay physicians the average price, plus another 2.5 percent and a flat fee of $16.80, not including reductions required by sequestration, or automatic spending cuts. The program would also pursue ways to pay for medicines based on different definitions of value….
The missive from the senators is not surprising. Even before the administration unveiled its program last month, there was heated opposition. Since then, more than 300 groups representing physicians, drug makers, and patients also released a letter that encouraged the administration to withdraw its proposal. And many of these groups have been lobbying Congress.
“The proposal, which was rushed through review without physician or patient input, lays out an experiment (that is) not based on quality metrics,” said the Community Oncology Alliance, a trade group that represents smaller cancer clinics, at the time the program was unveiled last month.
Right now there if there are two drugs that have identical expected clinical outcomes for a patient, the Medicare Part B payment regime gives the prescriber a very strong incentive to prescribe the more expensive drug. If Drug A costs $2,000 a dose and Drug B cost $100 a dose, the doctor makes $180 from prescribing Drug A while he only makes $6 from prescribing drug B. The new reform tweaks that a bit. Drug A would give the prescriber a fee of $66.80 while Drug B would have a fee of $18.80. There is still a gap where prescribing Drug A is better for the doctor than the clinically identical Drug B but the gap is smaller.
This is supposed to be provider level budget neutral. Prescribers who mainly prescribe low cost drugs will see higher reimbursement. Prescribers who prescribe mainly high cost drugs will see much lower reimbursements.
The area of cost savings that may occur is if there is a composition shift in the drugs prescribed. If prescribers switch from high cost Drug A to lower cost Drug B because the gap in their reimbursement is far smaller, then the system as a whole saves money and the patients save money as their co-insurance and deductibles are not tapped for as much cash.
This is fairly dry technical policy writing. The point of opposition is from prescribers who currently prescribe high cost drugs (even if there are no low cost substitutes) as this policy change will take money out of their pockets which means their mistress might have her allowance cut. Concentrated losses lead to far more opposition than dispersed gains lead to support.
Medicare Part B drug payment reform is not a huge deal in the scheme of things. It would be a step in the right direction in a marathon of cost control. But that step illustrates the difficulty of taking money away from incumbent recipients to rejigger incentives so they are a bit less perverse.
The Other Bob
Looking forward to your comments on the reports on large price hikes potentially coming.
Hard to imagine we’re actually having this debate. People kvetch about lawyers, but they have stronger rules than this, even if they often don’t live up to them. These guys sound like financial advisors. I can imagine they hid behind marginal differences that don’t really justify the cost differential, but why the differential in the first place?
The use, of commas, in that block quote, is terrible!
@Hoodie: Name brand vs. generic. SATSQ
@Luthe: Or two very slightly different drugs with the same clinical profile but one is approved on label for Condition X and the other is approved on label for Condition Y but can treat Condition X off-label safely and effectively.
This is probably a stupid question but why is a doctor “reimbursed” according to which drug s/he prescribes? I get that the doctor should be paid according to the services rendered and that prescribing drugs is one of the services but why should it matter which drug? Is there something obvious I’m missing here?
Wondering the same thing
@Gelfling545: Because while people bitch all the time about our health insurance system, the actual medical system itself is completely, irredeemably fucked up.
Would Medicare ever require prior authorization like insurance companies do? If I want to treat a lung cancer with intensity modulated radiation therapy (IMRT) I have to submit a 3-D conformal therapy plan that is not acceptable with the IMRT plan showing adequate tumor coverage with acceptable normal tissue doses before an insurance company will pay for IMRT. Likewise if I prescribe a long acting pain medication like 0xy-c -on-tin insurance companies often say no and will not cover it, but they will cover long acting m0rF ine.
Richard – do you have any recommendations for teaching kids soccer strategy?
My 10 year old is playing for the first time (his choice!) and is not quite sure of what he should be doing. I’m thinking basics around the difference between fullbacks, halfbacks, and forwards, when to move forward, how to watch the game and think about where they should be moving to for support of teammates and avoid crowding.
I’m trying to talk to him about it and show him examples while trying not to overwhelm him and make him disengage from soccer.
@Central Planning: Don’t even worry about positioning… just get him playing small sided games of keep-away and man in the middle as much as possible to get foot skills and an idea that he should be looking for distribution … he’ll pick up strategy and technique as he plays but build the basic foot skills and near field awareness and everything else will come. If you have a chance, get him to play a bit of futsul as that is awesome skill development and a lot of fun
@liberal: no doubt but I’m sure they phrased it somewhat differently in writing the regulations and wondered what possible justification they could make.
I believe what’s being covered here is chemotherapy, and other drugs that are administered in a doctor’s office, infusion center, etc., and not, say blood pressure meds or insulin. I’m guessing–our favorite insurance wonk could confirm–that there is a pro fee (and perhaps a facility fee) associated with giving IV meds.
@Gelfling545: It’s a great question. Lots of service businesses seem to operate on a “mark up” basis. They’ll need a part as part of a repair, and—maybe I’m wrong about this—do a mark-up that’s oftentimes a given percentage of the wholesale price of the part, instead of something that really reflects their costs (say, stockpiling costs, risk that the part is rarely used and takes warehouse space, etc).
@amygdala: Right, but the question is why they should get a cut that’s higher if the cost of the drug is higher. I think we’re presuming that this is true even within a class that are on the same schedule (IV meds, in your example).
IMHO this is economic rent, pure and simple. It’s entirely reasonable to charge more for an IV med than a pill, because the former would have associated costs to the provider that the latter don’t. But within the class of IV meds, assuming that the cost of preparing, storing (if any) and administering are the same between two drugs, the only reason the markup on one should be bigger than the other is rent capture.
Not that medicine is the only sector where this should occur. I assume FIRE is rife with this kind of bullshit.
@liberal: Medicare, like all public policy, runneth over with unintended consequences.
I’m not an oncologist, but I doubt it can be assumed there isn’t cost variation among drugs. Having said that, I also doubt that the differences in what docs are reimbursed reflect those differences. The system persists because powerful interests benefit from it.
Other than making doctors salaried, I have few ideas of how to try to fix this. Policy can be improved iteratively, but that process burns through resources, too.