The Medicare Payment Advisory Commission (MedPAC) is an independent congressional agency established by the Balanced Budget Act of 1997 (P.L. 105-33) to advise the U.S. Congress on issues affecting the Medicare program.  In addition to advising the Congress on payments to private health plans participating in Medicare and providers in Medicare’s traditional fee-for-service program, MedPAC provides information on access to care, quality of care, and other issues affecting Medicare.

MedPAC conducted a meeting on September 2 to discuss concerns about trends in Medicare Part B drug pricing and spend.  The following high-level developments were noted for Medicare Part B drug spend:

In response to the trends identified above, committee members discussed ways in which the following policy goals might be achieved:

• Improve payment for Part B drugs with uncertain clinical benefit

• Spur price competition among Part B drugs

• Improve financial incentives under the Part B drug payment system

• Maintain incentives for innovation

MedPAC staff members prepared policy options for the committee to consider as a means to achieving the policy goals.  These options and related information are summarized by each of the Part B drug price reform categories listed below.

Paying for Part B Drugs with Uncertain Clinical Benefit

Part B drugs identified in this category are defined as those which receive approval under the FDA’s accelerated approval (AA) program.  The AA programs allows for drugs to be FDA-approved based on surrogate clinical endpoints which are to be confirmed by post approval studies. 

Given the uncertainty on clinical outcomes, it is proposed that a cap be set on payment for such drugs until a post-marketing trial confirms the drug’s benefits.  The cap may be based on the following criteria:

• The drugs estimated net clinical benefit and cost relative to standard of care,

• Some increment of the payment rate for standard of care,

• And 106% of the AA drug’s ASP for three years and thereafter based on payment rate for the standard of care. 

Further, it is proposed that a rebate system be established based on a percentage of the AA drug’s ASP in the event surrogate clinical outcomes are not verified in further studies.

Paying for Part B Drugs with Therapeutic Alternatives

Drugs in this category include single-source products with therapeutic alternatives which are reimbursed according to their own ASP.  To spur price competition among these agents, MedPAC proposes a reference pricing system for Part B products which have “similar health effects.”  In this scheme, a reimbursement rate for drugs with similar health effects could be based on the following:

• Lowest ASP of product in the reference group (least costly alternative)

• Volume-weighted ASP of all products in the reference group

• Lower of the volume-weighted ASP’s of all products in the reference group or the ASP of the specific product furnished

Pricing information would be provided to Medicare beneficiaries and clinicians in the reference pricing scenario.  This policy would also need to address whether Medigap policies could cover beneficiary cost sharing which is greater than the reference price.

Assessing Financial Incentives: ASP add-on

Financial incentives based on the current 6% add-on which may lead to the use of higher priced drugs were noted in the committee discussion.  A proposed policy option to address these incentives was presented to the committee

• Add-on = lesser of 6%, 3% + $21, or $175 per drug per day

These options were presented as illustrative and it was noted that other options could be considered.  The proposed approach would convert a portion of percent add-on to a fixed fee (3% + $21) and caps add-on for lower-priced drugs (6%) and high-priced drugs ($175).  An analysis of the proposed add-on options conducted by MedPAC staff showed that the largest reductions in payment would be seen in the highest cost drugs while having little-to-no effect on low-cost drugs.

Implications for Manufacturers of Part B Drugs

All of the proposed policy changes represent recommendations for the MedPAC committee to consider.  The proposed policy changes are generally subject to a public process by which interested stakeholders would be given a venue for comment on the changes. 

Manufacturers of Part B drugs should review the proposed policies and monitor MedPAC for updates related to the proposed changes.  Internal discussion and analyses on the potential impact of the proposed policies are warranted in the event MedPAC moves to an open public comment period on the potential changes to Part B drug reimbursement.