Medicare Wants to Pay Less for Part B Drugs

Will This Make Cancer Drugs Unaffordable?

pharmacist sorting pills
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Medicare Part D is championed as the prime source of prescription drug coverage for Medicare beneficiaries. What many people do not realize is that Part B, the part of Medicare that covers your outpatient medical care, pays for a limited number of prescriptions as well.

Part B medications include many of the vaccinations we need as adults, including vaccines against influenza and pneumococcal pneumonia and in some cases, vaccines against hepatitis B and tetanus.

However, the majority of medications are needed by people with the most vulnerable disease states. All Part B drugs are given in an outpatient setting. Intravenous nutrition and tube feeds treat those who are malnourished or unable to digest food. Drugs that treat autoimmune disease, blood disorders, end-stage renal disease, and organ transplantation are covered. Anti-cancer drugs that are administered in an outpatient setting, like your doctor's office, are also included in the Part B benefit.

The Centers for Medicare and Medicaid Services (CMS) has revealed a new payment model for Part B drugs. With the rising costs of medication, the proposed changes are intended to save Medicare money, but many medical organizations, especially oncology groups, claim that it could put people's health at risk.

The Rising Cost of Cancer Drugs

In 2015, prescription drug spending accounted for 17 percent of all U.S. health spending, a total of $457 billion.

Part B drugs attributed $20 billion of that amount. Now consider that seven of the 10 most expensive drugs Part B paid for last year were cancer treatments.

Cancer is an epidemic not only in America but across the world. Costs of care are escalating at a rate faster than any other medical area. By 2020, those costs could exceed $173 billion per year.

Will Medicare be able to afford it?

Changing Part B Payments to Doctors 

As it stands, doctors purchase medications and are subsequently reimbursed by Part B an amount totaling the average cost of the drug plus 6 percent. The 6 percent add-on is used by doctors not only to acquire and store the medications but to deal with administrative costs in managing them. Centers for Medicare & Medicaid Services (CMS), however, raises concern that doctors are using more expensive medications to turn a profit.

For this reason, CMS wants to change their reimbursement model. The add-on will be reduced from 6 percent to 2.5 percent. A flat fee of $16.80 will also be added to the cost of each drug. This would make it less financially advantageous to use more expensive medications and possibly more profitable to use cheaper medications when the purchase price is low enough.

Changing the Value of Part B Medications

CMS's model goes beyond changing add-ons and flat fees to doctors and outpatient clinics. It also aims to adjust reimbursements based on how effective a medication has been shown to work in clinical trials. The trouble is that not every medication has a large number of clinical trials to review.

This concept of value-based pricing will allow Medicare to pay less than the average drug price if another drug has been shown to be more effective for a given condition. In some cases, it could cost doctors more to acquire a drug than what Part B will pay for it. 

The CMS proposal would also rely on a cost-effective measurement called the Quality Adjusted Life Year (QALY) that assesses the potential benefit of a drug in relation to its cost. Interestingly, the Affordable Care Act prohibits the use of QALY.

Pros and Cons of the CMS Proposal

CMS aims to decrease Medicare spending for medications in general,but cancer drugs have become an area of contention for those opposed to the regulation.

 If it becomes cost-prohibitive to offer certain treatments in doctors' offices, especially chemotherapy, people will have to turn elsewhere. This would be unfortunate since studies have shown that chemotherapy in the doctor's office can cost as much as 24 percent less than in a hospital outpatient department. The alternative would be that beneficiaries receive these treatments in an inpatient hospital setting, a far more expensive option for Medicare and beneficiaries alike.

There is no question that the CMS proposal would save Medicare money upfront. The question is at what cost. The model is based on dollars and cents and makes no mention of the actual health of the person who would be undergoing treatment. Detractors of the proposal say it is a one-size-fits-all model that loses site of actual patient care. They also claim it takes clinical judgment away from healthcare provider, could decrease access to medications, and does not fix the underlying cause of overpriced medications set by the pharmaceutical industry. Despite the controversy, CMS plans to run a trial of the model over a five-year period.


American Society of Clinical Oncology. The State of Cancer Care in America: 2016. Published March 2016. Accessed June 20, 2016.

Avelere Health, LLC. Total Cost of Cancer Care by Site of Service: Physician Office vs Outpatient Hospital. Published March 2012. Accessed June 20, 2016.

Centers for Medicare and Medicaid Services. CMS proposes to test new Medicare Part B prescription drug models to improve quality of care and deliver better value for Medicare beneficiaries. Published March 8, 2016. Accessed June 20, 2016.

Federal Register. Medicare Program; Part B Drug Payment Model. Published March 11, 2016. Accessed June 20, 2016.

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