The recent proposal for a large-scale test of payment reforms for Medicare Part B “physician-administered” drugs has generated broad opposition from many patient groups, physician specialty societies and pharmaceutical companies. While many consumer organizations that represent Medicare beneficiaries have expressed support, the future of the proposed reforms is unclear.

Officials at the Centers for Medicare and Medicaid Services (CMS) have stated that the proposal will be modified before moving forward, which we believe is the right response. The core concepts to reform Part B drug payments complement other reforms being implemented by CMS and the private sector. To make these concepts operational, CMS should modify the payment formula changes proposed in Phase 1 to prevent adverse impacts, and develop the pricing-reform ideas in Phase 2 through much more public engagement.

We are both veterans of previous difficult fights over Medicare drug payment reforms, including the implementation of the current Part B payment formulas in 2005. That reform corrected distorted prices, and resulting overpayments and inefficiencies, in the previous “AWP” system – aligning drug payments more closely with actual net drug prices paid. Then, as now, reforming drug payment should be handled with the goal of avoiding negative financial impact on small practices, or harm to beneficiaries through reduced access to needed drugs.

The CMS proposal reflects the reality that Medicare’s Part B drug payment system has fallen behind payment approaches in other areas. The payment is based on the manufacturer’s average sales price for a drug. Doctors and hospitals earn large fees when they use expensive Part B drugs, regardless of how well they work or their impact on costs of care.  Doctors make only pennies and hospitals receive no reimbursement when they use inexpensive generics, including many generics that are the backbone of proven-effective treatment regimens.  It’s a payment approach that favors more and more expensive drugs, not more valuable drugs, and may exacerbate generic drug shortages too.

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