U.S. to Test Ways to Cut Drug Prices in Medicare

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U.S. to Test Ways to Cut Drug Prices in Medicare


WASHINGTON — The Obama administration said on Tuesday that it would test new ways to pay for prescription drugs in an effort to slow the growth of Medicare spending on medicines while encouraging doctors to choose the most effective treatments for their patients.

The announcement comes as presidential candidates including Hillary Clinton, Senator Bernie Sanders and Donald J. Trump are calling for government action to protect consumers against high drug prices.

Federal officials said the government spent $20 billion last year under Part B of Medicare for prescription drugs administered in doctors’ offices and hospital outpatient departments.

The current payment formula provides “weak incentives” for doctors to choose the lowest-cost therapy to treat patients effectively, the administration said. Indeed, it said, the current payment formula “may encourage the use of higher-price drugs when lower-cost drugs of equivalent effectiveness are available.”

Medicare payments to doctors and hospitals for Part B drugs are generally based on the average sale price of a drug and 6 percent, officials said. The Medicare Payment Advisory Commission, an independent panel that advises Congress, said this formula “may create incentives for use of higher-priced drugs,” because 6 percent of a higher-priced medicine generates more revenue and potentially more profit for health care providers.

Part B covers a wide range of drugs to treat various types of cancer, rheumatoid arthritis, macular degeneration and other conditions. Many are produced by genetic engineering or made from microorganisms or human or animal cells. Use of such “biologics” has grown rapidly in the last decade and now accounts for a majority of Part B drug spending, the administration said.

Dr. Patrick H. Conway, a deputy administrator of the Centers for Medicare and Medicaid Services, said the government would test a half-dozen alternative ways of paying for drugs under Part B of Medicare.

Under one proposal, Medicare would set a standard payment rate, or benchmark, for a group of “therapeutically similar drug products.” Pharmaceutical companies have opposed this idea, known as reference pricing, because, they say, patients with the same condition may respond differently to the same drug.

Under another proposal, Medicare would pay drug companies based on how well their treatments work in patients. Payment might be linked, for example, to the effectiveness of a drug in preventing heart attacks.

Yet another option would reduce or eliminate the patient’s share of the bill for Part B drugs. Currently, beneficiaries are often responsible for 20 percent of the Medicare-approved amount for outpatient drugs under Part B.

Medicare could also provide feedback to doctors, informing them how their “prescribing patterns” compare with those of doctors in certain geographic regions or in the nation as a whole.

Under another alternative, Medicare would reduce the 6 percent add-on payment to 2.5 percent and pay a flat fee per drug on top of that.

Dr. Conway said the government was not infringing on the discretion or authority of doctors.

“Physicians and clinicians will make the prescribing decisions,” he said. “Nothing limits the ability of physicians to prescribe the most appropriate medications.”

He could not say how many of the 55 million Medicare beneficiaries would be affected by the new methods of paying for prescription drugs. Different methods will be tested in different parts of the country, he said.

The administration said it would accept public comments on the proposals until May 9.

In an apparent effort to justify government action, the Department of Health and Human Services issued a new report on Tuesday. The report estimates that prescription drug spending in the United States totaled $457 billion in 2015, or 16.7 percent of spending on personal health care services. That is higher than previous official estimates because it includes not only retail drug spending, which was counted in prior government reports, but also spending on drugs administered in hospitals and doctors’ offices.

Of the $457 billion in drug spending last year, the administration said, about $328 billion (72 percent) was for retail drugs, and about $128 billion (28 percent) was for drugs provided in hospitals and doctors’ offices, often by injection or infusion.