Medicare Payment and Reimbursement

Hospital Advocates Concerned About Trump Drug Price Plan

October 29, 2018 8:44 am

The model’s approach appears aimed at maintaining the total amount of Medicare Part B funds that go to providers but sharply redistributing the payments among them, says one industry adviser.

Oct. 26—Hospitals would face uncertain financial impacts under a Medicare drug payment pilot announced this week.

The Centers for Medicare & Medicaid Services (CMS) sought public comments this week on a proposed plan to bring Medicare payments for most Part B drugs closer to the rates paid by other advanced countries.

The approach also would allow private vendors to negotiate drug prices with manufacturers. Physician practices and hospital outpatient departments (HOPDs) could choose among the vendors to provide their Part B drugs, as needed.

The model would change the Medicare payment rate to providers from 6 percent of the drug’s cost to set payments.

Details on the new model, which will be tested—and mandatory for providers—in regions to be announced, will be laid out in a proposed rule scheduled for spring 2019. It will be called the International Pricing Index (IPI) model.

The Trump administration plans to launch the five-year model in spring 2020.

The financial impact of the model could be significant. Fee-for-service (FFS) Medicare Part B drug spending was $28 billion in 2016, according to CMS. That spending was 1.8 times higher than what other advanced nations spent on such drugs, according to a CMS analysis.

Although many details of the program are yet to be finalized, a CMS preliminary estimate was that it would cut Medicare spending (both in FFS and Medicare Advantage) by $23.9 billion between 2020 and 2025.

Hospital Impact

CMS explicitly cited the Part B provider pay component—in addition to high drug costs—as a reason for the model.

“The dollar amount of the add-on is larger as drug prices increase, which may encourage physicians to prescribe higher-cost drugs, and raise beneficiary and program spending,” a release stated.

The model would continue Part B providers’ Medicare drug administration payments and would pay physicians and hospitals a “drug add-on amount.” CMS is considering a bonus pool that would pay providers for “prescribing lower-cost drugs or practicing evidence-based utilization.”

Alex Azar, secretary of the U.S. Department of Health and Human Services, said at an Oct. 26 health policy event that the approach actually would increase provider payments because the overall set payment allocated to providers would comprise a full 6 percent of a drug’s average sales price (ASP). The current rate of ASP plus 6 percent was reduced to ASP plus 4.3 percent by the federal budget sequester.

“We want to detach, though, an individual payment from being set just on the basis of price,” Azar said.

Although the specific financial impact on hospitals and practices was not modeled, the pilot aims to “hold healthcare providers harmless to current revenue to the greatest extent possible” but also to “remove the incentive to prescribe higher-cost drugs,” CMS stated.

“The bottom line is, we’re making it clear we will make this work for doctors and hospitals,” Azar said. “They are critical players to making this work to have this program function.”

One potential source of savings could come from eliminating the need for hospitals to continue the buy-and-bill system that can be resource-intensive.

CMS estimated that relying on an international price index and setting a target price rather than using the ASP would save about 30 percent on Part B spending.

Hospital advocates were still studying the proposal but had early concerns.

“We agree with the president that it is time to reduce the drug tab for Americans, but actions need to be focused on the real culprit—manufacturers’ prices—not the frontline hospitals and physicians who administer and prescribe those medicines,” Chip Kahn, president and CEO of the Federation of American Hospitals, said in a written statement. “We look forward to examining the details and fine print of the Administration’s proposals.”

Although many details remain to be finalized, the model’s approach appears aimed at maintaining the total amount of Medicare Part B funds that go to providers but sharply redistributing payments among them, said Erica Breese, a director at Avalere Health. 

“If you are in a specialty, like oncology, that prescribes and administers high-cost drugs, switching to a set fee is going to change your reimbursement versus primary care, who tend not to administer high-cost biologics,” Breese said in an interview.

Another uncertainty is the model’s impact on the 340B discount drug program. CMS wrote that under the proposed approach “340B prices would be affected” but did not specify the extent of those impacts.

“We are concerned that, depending on how it is implemented, the IPI proposal could prohibit 340B hospitals from accessing the statutory discounts the law guarantees but might not provide sufficient reduction in prices to offset these losses,” said Maureen Testoni, interim president and CEO of 340B Health, which represents hospitals in the program. “The savings 340B provides eligible hospitals allow them to offset some of the uncompensated-care costs they incur and support vital services that might otherwise be unavailable.”

Testoni also questioned whether the proposed IPI mechanism for purchasing drugs through vendors could be considered a group purchasing organization (GPO). The 340B program prohibits many 340B hospitals from using a GPO.

“It will impact 340B entities, but how exactly that gets played out is another one of those uncertainties,” Breese said.

CMS cited support it had received from hospitals and other providers for implementing a similar model, the Competitive Acquisition Program (CAP), which operated from July 1, 2006, to December 31, 2008.

The model would begin with two broad groups of drugs—single-source drugs and biologicals—but could over time include multiple-source drugs and Part B drugs provided in other settings. Single-source drugs (the top 100 of which comprise 15 percent of total allowed charges in Part B) and biologicals (the top 100 of which account for 73 percent of total allowed charges) encompass most drugs used under Part B.

Feedback Sought

Among the specific details CMS seeks feedback regarding are:

  • Which types of entities should serve as national vendors for the model, and whether hospitals should be among those
  • Whether physicians and hospitals should receive bad debt payments if beneficiaries fail to satisfy cost-sharing obligations
  • Whether certain types of physician practices or HOPDs should be excluded from the model

“Hospitals need to think through what the implications will be because this is the time to influence the policy,” Breese said. “Now is the time to think through what makes sense for their organization and what will work best for them.”

Comments on the proposal are due by Dec. 31, 2018. They can be submitted through

Rich Daly is a senior writer/editor in HFMA’s Washington, D.C., office. Follow Rich on Twitter: @rdalyhealthcare


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