A Patient-Centered Approach to Medicare Drug Reform

A Patient-Centered Approach to Medicare Drug Reform

The Trump administration has recently proposed a number of sweeping changes to the Medicare program to curb taxpayer spending on prescription drugs. These include price setting, revamping how doctors and hospitals acquire drugs, and changing how physicians are reimbursed for medicines.

The changes apply to “Part B,” the component of Medicare that covers medicines administered in a health-care facility, like gene therapies and advanced treatments for cancer, arthritis, and multiple sclerosis. Today, physicians purchase these medications directly.

Each of the suggested reforms are blunt instruments that focus exclusively on drug prices without fully accounting for clinical value. These changes may reduce short-term expenditures, but will likely restrict access to the lifesaving medications that many seniors rely on. These policies also miss the critical clinical point that in certain patient scenarios, lower-cost drugs are ineffective, potentially harmful, and economically wasteful, while in others, the more precise use of higher cost medications can lead to healthier patients and better financial outcomes.

The Trump administration’s proposal, which is being pitched as a five-year experiment in half the country, has three key components. 

First, it would set prices on Part B drugs. Rather than the current program, which sets Part B reimbursements on the average U.S. sales price of a drug, the government would index payments to a drug’s average price in 16 foreign markets with socialized healthcare systems. Health and Human Services Secretary Alex Azar believes this move will trim drug spending by 30 percent.

Second, it would revamp the process for acquiring medicines by injecting a middleman between physicians and manufacturers. These vendors would purchase Part B drugs from manufacturers, bill Medicare, and distribute them to doctors and hospitals. The administration believes middlemen will be able to negotiate better discounts from manufacturers.

Finally, the proposal would alter the reimbursement formula for doctors. Rather than receiving a 4.3 percent markup, which is designed to cover handling, storage, and administration, doctors would receive a flat fee for each dose administered. Critics of the current formula suggest that doctors are incentivized to prescribe expensive drugs in order to maximize their payout.

There are serious problems with these sledgehammer approaches.

The international pricing index makes little sense. Most of those 16 countries keep prices artificially low by restricting patients’ access to care. 

Consider that nearly 90 percent of new treatments introduced worldwide between 2011 and 2017 were available to Americans. In Japan and Canada, meanwhile, fewer than 50 percent of new treatments were available; in Greece, only 14 percent were. As a result, patients in these countries suffer from lack of access to lifesaving treatments.

History suggests that inserting more middlemen into the drug pricing equation won’t curb costs — and adds an extra layer of complexity for patients. The U.S. government already tried this approach from 2006 to 2008, when Medicare contracted with vendors to buy Part B medications. Unfortunately, the government did not save money, and as a result the program was axed amid disputes over contracts and low participation.

What’s more, a flat fee could force some doctors to close their doors. Eighty percent of oncologists already say that reimbursement cuts impact their ability to sustain their practices.

Patient-centered alternatives exist. A clinically driven approach — a scalpel in lieu of a sledgehammer — that ensures seniors have access to the high-value medicines they need and eliminates the use of care that does not improve health could save the Administration billions and improve the health of our seniors and the disabled.

Take “value-based insurance design,” or V-BID, a private-sector driven strategy with rare bipartisan political support. In V-BID programs, patient cost-sharing for certain highly effective drugs and procedures are eliminated or reduced to encourage their use — even if those services that are initially expensive.

The Medicare Advantage program, along with hundreds of public and private payers, have implemented V-BID to steer patients towards more effective treatments. To offset any increased costs associated with enhanced uptake, insurers make it more difficult to use drugs and procedures that fail to produce clinical benefits.

For example, decades of research reveal that routine Vitamin D screenings and pre-operative blood work and testing such as x-rays and ECGs before low-risk surgeries provide minimal or no health benefits. Every year, our health system wastes $340 billion on such low-value services. The elimination of a small portion could create headroom for purchasers to cover high-value services more generously.

In addition to the financial gains that result from eliminating no-value care, regulatory reforms leading to faster drug approvals would enhance competition, which would ultimately save Medicare money and increase patient access. Amgen, for instance, recently reduced 60 percent off one drug’s list price, a move that dramatically lowers the out of pocket cost for Medicare beneficiaries.

All stakeholders agree that slowing the growth of Medicare spending is a national imperative. Various strategies to cut costs include the potential for harm if access to essential care is restricted. Before we implement policies that deny seniors access to effective treatments, a focus on the identification and elimination of no-value care should be a priority.

Dr. A. Mark Fendrick is the director of the Center for Value-Based Insurance Design at the University of Michigan, where he is also a professor of internal medicine in the School of Medicine and a professor of health management and policy in the School of Public Health.

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