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  • Writer's pictureBrian Abraham

Medicare Part B Drug Rule - Explainer 2 for Phase 2


In my last (and first) blog, I talked about the concepts that CMS would like to test in Phase I of its proposed rule on Part B Drugs. CMS expressed concern that spending $21 billion a year on drugs administered in physician offices and other outpatient settings is too much. So they proposed to tamp down on it in two phases, the first a direct cut to the amount that Part B providers receive for these drugs, and the second to implement value-based purchasing (VBP) concepts used by commercial insurance companies, pharmacy benefits management companies (PBMs), and other governments.

VBP programs look at the effectiveness of drugs, either on their own or compared to others (hopefully their peers), and adjust the prices paid for those drugs. CMS and others, including the Institute for Clinical and Economic Review (ICER), a non-profit organization that analyzes effectiveness and costs of drugs and other therapies, have said that the use of VBP tools does not mean that CMS would or should pay the lowest price for a drug, but that VBP will help CMS manage costs.(1) This concept is not unreasonable, but there are a few items to keep in mind as we look at the proposals in Phase II.

CMS sees a few things happening simultaneously under Phase II, which may make it very complicated. First, it endorses four VBP tools:

  • Reference pricing

  • Indicatons-based pricing

  • Outcomes-based risk sharing agreements

  • Elimination of patient copayments/coinsurance

Then, it also wants to implement clinical decision making tools that physicians and other health care professionals can use when looking at the drugs they are thinking about administering to Medicare patients. Also, CMS says it would be willing to negotiate rebate agreements similar to the way that Medicaid does. This again, is all fine theoretically, but the details will make or break the program.

As with Phase I, this second phase would be rolled out nationally, with “control” and “test” groups. The same stakeholders who expressed grave concern about the notion of a national demonstration program (an oxymoron in public policy parlance), have the same concerns about Phase II. CMS said it plans to roll out these programs through a contractor. But even to solicit a proposal, Phase I has to begin, which it hasn’t, in order to provide information on how to implement Phase II.

Each VBP tool has advantages and disadvantages, with the question of whether CMS can utilize these tools effectively and fairly, while still providing access to patients who need particular drugs. You can imagine how the stakeholders have responded.

Reference Pricing means providing the same payment for all therapeutically equivalent drugs, according to the proposed rule.(2) However, it may not be that simple; yes, paying the same amount for drugs that do the same thing seems sensible. But if the drugs are not composed similarly (that is, not generic versus brand), but end up yielding the same result, they may not deserve to be paid the same price. If drugs composed similarly have different side effect profiles, yet yield the same results, the drugs may not be that similar, so they may not deserve to be paid the same. Several commenters reflected on this.(3)

Indications-based pricing means paying different amounts for the same drug which is used for different indications. This could lead to all sorts of issues, including coding. Put aside for a moment the drug’s possible effectiveness in different diseases. Claims processing is the first thing that comes to mind, and it could slow the system to a crawl. Even if a Phase II contractor is hired to enact this part of the VBP toolbox, there may be significant difficulties transmitting these “rules” to the Medicare Administrative Contractors (MACs) that are responsible for making the payments to providers under Part B. Also, the HCPCS area within CMS (the area responsible for assigning drug codes) should brace for an onslaught of internal new and revised coding requests.

Outcomes-based risk sharing agreements occur between insurers and manufacturers (or providers) whereby when patients do well on a certain therapy, the insurer pays (more) and when patients do not respond well to the therapy, the insurer does not pay (or pays less). The details will need to be worked out so that CMS is not looking at individual patients, but at patient groups (yet to be determined), and what comorbidities those patients may have, and how long a longitudinal look to take to discern the success of the therapy, and so on. This may be where some of the stakeholder rhetoric around experimenting with Medicare patients comes in; whether this tool is being used as a study or an actual cost-saving utility may be difficult to determine.

Eliminating patient copayments seems to be plausible, especially if these tools limit the access that Medicare patients who are not participating in managed care plans (aka, Medicare Advantage) have to Part B drugs. No copay is somewhat a quid pro quo for the patient, but may not be much help to the patient’s health if the physician ultimately decides to use such a product that does not perform well because the VBP tool steered him or her in that direction.

Clinical Decision Making tools are all the rage in several fields, including cardiology, oncology, and even radiology. Their use would not be new to physicians but would be unique as part of a Medicare program. Even though CMS states that physician decision making should not and will not be compromised by VBP tools, including these algorithms, healthcare professionals must wonder whether they will have the autonomy to treat patients in the manner they think is best.(4)

Where we go from here is the proverbial waiting room (where we can all feel like the Medicare patients this proposed rule is supposed to help). CMS has not stated or signaled that a final rule will not be published even though the customary 30-day response time from the close of the comment period has passed. Phase I has yet to begin, if it will at all. My opinion is there is even money on it beginning before November 8, which means a final rule, at least for Phase I would have to be released before September 8 in order for MACs to prime their systems. Beginning Phase II is another story, meaning there could be a big permutation of this phase after January 20, 2017. Right now, the wait is on.

(1) 81 Fed Reg 13243 (March 11, 2016) and ICER comment letter accessed at

(2) 81 Fed Reg 13243.

(3) Comments accessed 08-04-2016 at

(4) 81 Fed Reg 13242, 13244.

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