Monday, 25 April 2016 06:25

New Part B Drug Payment Model: CMS Proposes to Test Options for Change

Written by

j oppelt

It’s no secret that the rising cost of prescription drugs—and patient access to them—is one of the healthcare industry’s hot topics right now. So hot is it for the Medicare program that the Department of Health & Human Services (HHS) held a special pharmaceutical forum in November to explore the issue.

Prescription drug spending in the United States was about $457 billion in 2015, or 16.7 percent of overall health spending, according to a report from the HHS Assistant Secretary for Planning and Evaluation (ASPE). In 2015, Medicare Part B spent $20 billion on outpatient drugs administered by physicians and hospital outpatient departments.

That is why the Centers for Medicare & Medicaid Program (CMS) issued a proposed rule on March 8 that outlines a two-phase approach for changing the current Medicare Part B payment model. Via the new model, CMS would test new ways to support physicians and other clinicians as they choose the drug that is right for their patients. The goal, CMS states, is to “drive the prescribing of the most effective drugs” and to test new payment approaches.

Generally, these drugs (such as cancer medications, injectables like antibiotics, or eye-care treatments) fall into the three categories below:

  • Drugs furnished incident to a physician’s service in the office or hospital outpatient settings
  • Drugs administered via a covered item of durable medical equipment
  • Other categories of drugs explicitly identified in the law.

Two Phases of Change

Generally, Medicare Part B pays physicians and hospital outpatient departments the average sales price (ASP) of a drug, plus a 6 percent add-on. CMS proposes changing the add-on payment to 2.5 percent plus a flat-fee payment of $16.80 per drug per day, which will, it says, cover the cost of any Medicare Part B drug. The flat fee would be updated at the start of each year by the percentage increase in the consumer price index for medical care for the most recent 12-month period. CMS proposes to launch this test in late 2016 (no earlier than 60 days after the rule is finalized).

In the second phase, CMS would implement value-based purchasing tools similar to those employed by commercial health plans, pharmacy benefit managers, hospitals, and other entities that manage health benefits and drug utilization. The proposed rule provides details of the following options.


Improving incentives for best clinical care. 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 they are as good or better for patients based on the evidence.

  • Discounting or eliminating patient cost-sharing to improve beneficiaries’ access and appropriate use of effective drugs.
  • Sharing online clinicians’ best practices in prescribing or information on a clinician’s prescribing patterns relative to geographic and national trends and evidence-based clinical decision-support tools as a resource for providers and suppliers.
  • Basing prices on a drug’s clinical effectiveness for different indications. 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. The goal is to pay for what works for patients.
  • Setting a standard payment rate—a benchmark—for a group of therapeutically similar drug products.
  • Entering into voluntary, risk-sharing agreements with drug manufacturers to link patient outcomes with price adjustments.

Goals and Timelines

CMS will conduct a complete evaluation of the proposed model, which would run for five years. The agency’s goal is to have the incentive and value-based purchasing tests fully operational during the last three years to evaluate changes and collect sufficient data. 

The criteria for a successful model will be whether it reduces net Medicare spending, without limiting coverage or benefits, while maintaining or improving patient care.  CMS plans to implement a concurrent real-time claims-monitoring program to track utilization, spending, and prescribing patterns as well as changes in site of service delivery, mortality, hospital admissions, and several other high-level claims-based measures.

All providers and suppliers furnishing and billing for Part B drugs (all Part B drugs and biological) would be required to participate in the model, although not all would be part of each test, as described below. They would be placed in a control or study group based on Medicare Part B primary-care service areas. (The state of Maryland is excluded because hospital outpatient departments operate under an all-payer model.)

The proposed implementation dates currently look like this:

  • No earlier than 60 days after the final rule is released to the public CMS would begin to test the changes to Medicare Part B ASP payments for drugs by creating a control group and a study group.  One group would remain under the 6 percent add-on arrangement, and the second would receive 2.5 percent of the ASPs of a drug plus a flat $16.80 per drug per day payment.

106% Average Sales Price (ASP) (control)
102.5% ASP + $16.80 flat per day per drug payment

  • No earlier than January 2017 CMS would begin to test value-based purchasing arrangements by further dividing the ASP test and control groups as follows:
    • 106 percent ASP
    • 106 percent ASP with value-based purchasing tools
    • 102.5 percent ASP + $16.80
    • 102.5 percent ASP + $16.80 with value-based purchasing tools

The same set of value-based purchasing tools would be used in each of the two new study groups.

This proposed model would not affect drug coverage or any other benefits, and beneficiaries will still have complete freedom of choice of doctors, hospitals, and other providers and suppliers. 


Information Source

CMS is accepting comments on the proposed rule through May 9, 2016. It is available at

About the Author

Janis Oppelt is the editorial director for Panacea Healthcare Solutions.

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Last modified on Monday, 25 April 2016 08:16

Janis keeps the wheel of words rolling for Panacea®'s publishing division. Her roles include researching, writing, and editing newsletters, special reports, and articles for and; coordinating the compliance question of the week; and contributing to the annual book-update process. She has 20 years of experience in topics related to Medicare regulations and compliance.