Medicare to Test New Pricing Program

Prescription Drug Use Up

As spending on prescription drugs continues to rise, and be reported in the media as Presidential hopefuls keep it in the spotlight, the federal government is looking for options to address the issue. They are starting with a test program in Medicare, and it looks to be the first of many new changes in prescription pricing to come.

U.S. Department of Health and Human Services’ Office reported this week that spending on prescription drugs is projected to have risen to $457 billion in 2015 and will likely continue to grow as a percentage of overall healthcare spending.

In response Medicare is proposing a test, change the way it compensates doctors who administer drugs in their offices as a way to try to cut drug spending. They emphasize that they won’t be telling doctors which drugs to prescribe. They are only addressing existing financial incentives in the payment system that can encourage the use of a more expensive drug, when a cheaper medication is just as effective.

Currently Medicare Part B generally pays physicians the average sales price of a drug, plus 6 percent. The new model would test a payment of 2.5 percent plus a flat fee payment of $16.80 per drug per day. The 2015 increase is an increase of about 8 percent from 2014’s prescription drug spending, which is also an estimated figure, the government agency said.

Prescription drug spending is estimated to have accounted for 16.7 percent of $2.729 trillion spent on healthcare last year, the U.S. Department of Health and Human Services’ Office of the Assistant Secretary for Planning and Evaluation said in a report.

An estimated $328 billion was spent on retail drugs, the report said. It also estimated that another $128 billion was spent on non-retail drugs, such as cancer treatments that are administered in a physician’s office or hospital.

The agency forecast that total drug spending will grow to $535 billion in 2018 and represent about 16.8 percent of all healthcare spending. The figures are based in part on National Health Expenditure Accounts estimates from the Centers for Medicaid and Medicare Services.

It’s unclear how doctors and hospitals will respond. In the past, smaller oncology clinics have stated that Medicare cuts have an unfairly disproportionate impact on them. PhRMA, a drug industry lobbying group, has expressed its displeasure with the idea and says the report on costs doesn’t take into account the benefit new, expensive drugs have for those conditions that previously had few or no options such as cancer and multiple sclerosis.

Other payment alternatives to be tested include reducing or eliminating a patient’s share of costs for drugs deemed highly effective, as well as paying a premium for drugs that deliver demonstrably better results. Medicare hopes to launch its experiment later this year.

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