Do you want to buy a steering wheel?  Or do you want to buy a car?

The answer may seem obvious – buying the whole car is a lot more efficient and makes it much easier to evaluate the final product – but that’s not how we pay for health care: We buy almost everything a la carte, including pills, surgeries, and expensive scans.  As a result, no one has any incentive to ask which combination of treatments delivers the best health, at the lowest cost, for the patient.  In fact, doctors and hospitals are often financially rewarded for doing more and penalized for doing less, even when doing so could produce better outcomes or lower costs.

Across the country, that is starting to change. Private insurers are routinely experimenting with value-based payment designs that pay more for better outcomes. Even in Medicare, long considered the third rail of American politics, these changes are starting to proliferate.

Medicare’s Part B program (which covers medicines delivered in a doctor’s office or hospital) is responsible for paying for high cost, high impact medicines for cancer, arthritis, or multiple sclerosis—but patients also pay 20 percent of the bill out of pocket.

Under current rules, doctors are paid the average sales price of a medicine (net of rebates) plus 6 percent.  But, when two drugs are basically equivalent, for the same indication, like Avastin (which is cheap) and Lucentis (which isn’t), doctors sometimes prescribe the higher priced medicine, with patients paying more out of pocket as a result.  Doctors are also reimbursed more for the higher priced medicine.

In March, the Centers for Medicare and Medicaid Services (CMS) proposed a new approach to paying providers for Part B drugs (those administered in the outpatient setting like chemotherapy drugs). This new model would pay providers the average sales price (ASP) of the drug plus 2.5 percent along with a fixed fee of about $17. This would represent a somewhat welcome departure from how Part B drugs are typically paid for.

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