Medicare to test alternative payment plans for costly drugs

(Bloomberg) — The U.S. is preparing to test a variety of alternative payment plans in an effort to lower costs for a $20 billion Medicare program that pays doctors to administer high-priced drugs for cancer and other conditions.

The proposed programs would reduce the percentage of drug costs paid to physicians, decrease patient cost-sharing, and give doctors feedback on their prescribing patterns, the U.S. Centers for Medicare & Medicaid Services (CMS) said Tuesday in a statement.

The government now pays doctors the price of a drug, plus an additional 6 percent for treatments administered in their offices, which may encourage doctors to prescribe more expansive medications, CMS said. The current system financially penalizes doctors when they choose low-cost drugs to treat their patients, said Patrick Conway, the agency’s chief medical officer.

“The current perverse incentives structure doesn’t benefit patients or the health care system,” he said in a conference call.

The test will include almost all medications covered under Medicare Part B, which covers cancer treatments and other drugs given in doctors’ offices by infusion. It doesn’t include pills and other pharmaceuticals that patients take at home.

One alternative would reduce the percentage added to drug prices to 2.5 percent from 6 percent, and add a flat fee of $16.80 per day per drug. Another would pay higher prices for drugs used in situations where they’ve shown greater effectiveness.

Drug spending

The agency will also try using reference pricing — offering a standard payment for a group of similar products. That “name your own price” strategy is comparable to the strategy Priceline has used in the hotel reservations market. Doctors and drug suppliers will be divided up and placed into groups so the various innovations can be compared, CMS said.