CMS proposes new Medicare drug payment models: 8 things to know

CMS said Tuesday it would test new models to improve how Medicare Part B pays for prescription drugs in order to encourage physicians to select the most effective treatments for patients and to slow Medicare spending.

Here are eight things to know about CMS' proposal:

1. Medicare Part B covers prescription drugs administered in a physician's office or hospital outpatient department. Physicians and outpatient departments are typically paid the average sales price of a drug, plus a 6 percent add-on.

2. CMS has proposed changing the add-on payment to 2.5 percent plus a flat fee payment of $16.80 per drug per day. These changes would begin in late 2016.

3. CMS intends for the proposed model to result in savings and improved quality by changing prescribing incentives.

"Physicians often can choose among several drugs to treat a patient, and the current Medicare Part B drug payment methodology can penalize doctors for selecting lower-cost drugs, even when these drugs are as good or better for patients based on the evidence," said CMS.

4. The proposed rule also includes several value-based pricing strategies. One of those is to discount or eliminate patient cost-sharing to improve Medicare beneficiaries' access to effective drugs.

5. Under another proposal, Medicare would set a standard payment rate for a group of "therapeutically similar" drugs. Pharmaceutical companies have opposed this practice, known as reference pricing, according to The New York Times. They argue this method of pricing is flawed because patients with the same condition may respond differently to the same drug.

6. CMS also proposed paying drug companies based on the clinical effectiveness of a drug. "For example, a medication might be used to treat one condition with high levels of success but an unrelated condition with less effectiveness, or for a longer duration of time," said CMS.

7. Commenting on the proposals, Andy Slavitt, acting administrator for CMS, said, "First and foremost, our job is to get beneficiaries the medication they need. These proposals would allow us to test different ways to help Medicare beneficiaries get the right medications and right care while supporting physicians in the process."

8. CMS is accepting public comments on the proposed rule through May 9.

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