WASHINGTON — Suppose you’re trying to decide which injectable drug to prescribe to a Medicare patient. Would you take into account which drug gives you the biggest profit margin? And if you did consider that, would you admit it in public?
That’s what happened at one oncology conference attended by Geoffrey Joyce, PhD, chair of the pharmaceutical and health economics department at the University of Southern California, in Los Angeles. “An oncologist stood up and said, ‘When I was in private practice, we had a third-party vendor who would provide real time prices for all the oncology drugs so we could compare them to what we were going to get reimbursed … and we would prescribe according to [profit] margin. I’m so relieved to be working in a hospital now, where I don’t have to do that,’” Joyce said during an event here Thursday on prescription drug pricing sponsored by the Brookings Institution.
He told MedPage Today later that the oncologist was embarrassed about the situation and that the margin was only one consideration, but it was definitely in there.
The sometimes sky-high cost of office-administered drugs, especially in specialties such as oncology and rheumatology, has become more of an issue for physicians participating in Medicare, because they often have to purchase the drugs in advance and then submit claims for reimbursement after administering them.
“The more you’re seeing consolidation in the oncology industry, you’re starting to see more physicians who don’t want to do ‘buy and bill’ anymore,” said Kavita Patel, MD, MPH, an internist who is also a nonresident senior fellow at Brookings. She said physicians are increasingly turning to salary arrangements as less financially risky, adding, “I think you’ll see oncologists and other types of specialists saying [they] don’t necessarily want to be responsible for holding a drug.”
Seema Verma, administrator of the Centers for Medicare & Medicaid Services, told the audience that new approaches are needed to solve the problem of high-cost drugs in the Part B program; drugs are currently reimbursed at the average sales price (ASP) plus a certain percentage. “The price tags for these drugs are exceeding $300,000, $400,000 and even $800,000 … Paying for these drugs based on the average sales price plus an add-on doesn’t make sense. We need to modernize our payment systems to consider the new era of innovation.”
“New payment arrangements are needed and could take various forms,” she continued. “They may include paying for a drug over time only if the patient achieves certain clinical outcomes; or paying for a drug through a ‘shared savings’ approach based on the drug’s impact on the patient’s total cost of care; or paying for a drug under a subscription approach, with an upfront fee in exchange for as many doses of the drug as clinically necessary. When drugs are as expensive as some of the new gene therapies are, we absolutely must hold manufacturers accountable for outcomes.”
“In Medicare, spending on prescription drugs is growing faster than spending in any other area,” Verma noted. “In 2012, Medicare spent 17% of its total budget, or $109 billion, on prescription drugs. Four years later, in 2016, this had increased to 23%, or $174 billion. Lowering the cost of prescription drugs isn’t just something we would like to do; it is something that we must do in order to ensure the whole sustainability of our healthcare system.”
Medicare Part D drug benefit plans may see more rules coming to ensure that beneficiaries are paying the lowest possible prices, Verma suggested. “In 2016, Part D beneficiaries spent over $1.1 billion in out-of-pocket expenses for branded drugs that had comparable generics. Clearly, there are savings for patients being left on the table. To this end, CMS issued a memo to Part D plans this summer explaining the tools they have available and the expectation CMS has to ensure that beneficiaries are getting the best deal. While the memo reminded plans of their current authority in this area, we recognize that additional barriers stand in the way of fully encouraging generic utilization. So stay tuned for more from us on that issue.”
Commercial payers are also trying new ways to reimburse doctors for drugs administered in-office, said Samuel Nussbaum, MD, a former chief medical officer of health insurer Anthem, who is now a strategic advisor at the law firm Epstein Becker Green. “At Anthem, we knew with Part B drugs that the ASP markup was a perverse incentive,” he said.
Instead, company officials decided that for cancer patients, “if physicians followed clinical evidence and guidelines developed by their peers … we would pay the oncologist a care management fee in addition to ASP,” said Nussbaum. “So we … take away the perverse incentive and replace it with a patient-centered, scientifically based therapy.”
Nussbaum also said he supported other cost control measures, such as limited formularies, utilization management, and prior authorization. “They may not be compelling to patients, who may see this as more limited access, but used in the right way, they can guide the most effective therapies, to follow guidelines and clinical data generated in real-world evidence … so we don’t have, in cancer, the 15%-25% of care that’s not following the evidence and may not lead to the best outcomes.”