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This Is How Medicare Wants to Lower Your Drug Costs

March 9, 2016, 3:55 PM UTC
Financial health check or cost of healthcare
Photograph by Brian A. Jackson — Getty Images/iStockphoto

The Obama administration is test driving a new Medicare program to see if lower reimbursement rates for drugs would lead some Medicare doctors to opt for less expensive but just as effective options.

The move is outlined in a proposed rule issued by the Centers for Medicare and Medicaid Services Tuesday, reported the Wall Street Journal. It’s a bid by President Obama and lawmakers to try to rein in health care spending, part of which has been concentrated in rising prescription drug costs over the past several years.

Drug spending under Medicare Part B program, the prescription drug benefit provided by the government, has increased from $9.4 billion in 2005 to $18.5 billion in 2015, according to the Department of Health and Human Services. That is only expected to grow as total drug spending in the U.S. is expected to hit $535 billion in 2018.

However, the Medicare trial has raised concerns among pharmaceutical companies and doctors who worry that the reimbursement cut will limit options for patients, especially when it comes to expensive cancer treatments. Industry and consumer groups have written to the HHS in recent weeks voicing their concerns that the test program is “misguided and ill-considered,” reported the WSJ.

Officials have responded that the initiative is meant to align doctor’s choice to value more directly. Medicare Part B generally reimburses doctors for the sale price of the drug plus a 6% markup, which has led some to believe that doctors are incentivized to prescribe more expensive medications even when equally effective lower cost options are available.

“These [new] models would test how to improve Medicare beneficiaries’ care by aligning incentives to reward value and the most successful patient outcomes,” Dr. Patric Conway, chief medical officer at CMS, told the WSJ.

The pilot program will go into effect in two phases, starting in about two months and will run for five years. The first phase will realign the premium payments so that instead of a 6% premium plus the sale price of any drug, doctors in the pilot program will receive a 2.5% premium plus an additional fee of $16.80 on top of the sale price. The goal is to lessen the incentive to choose higher cost medications, while still ensuring patients have equal access to the drugs they need.

The second phase of the program plans to test the impact of the patient’s out-of-pocket costs on the decision to use a certain drug. That is expected to go into effect no earlier than January of next year.