CMS Proposal for Part B Drug Payment: A Poorly Conceived Experiment

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Blase N. Polite, MD, MPP

Blase N. Polite, MD, MPP

On March 11, 2016, the Centers for Medicare & Medicaid Services (CMS) issued a proposed rule in the Federal Register to test a change in reimbursement for Part B drugs.1 The first phase involves changing the 6% add-on to the average sales price (ASP) used to make drug payments under Part B to 2.5% plus a flat fee (to achieve budget neutrality). The second phase would implement value-based purchasing tools. The change would be executed as a mandatory national experiment in which practices are randomized based on their Primary Care Service Area to a current law payment of ASP+6% or the new ASP+2.5%. Based on additional cuts mandated by sequestration, which reduced Medicare rates by 2%, these payments actually represent ASP+4.3% and ASP+0.86%, respectively.

What is the goal of this randomized experiment? In CMS’ own words, the goal is: “To test whether alternative drug payment designs will lead to a reduction in Medicare expenditures while preserving or enhancing the quality of care provided to Medicare beneficiaries.”

Reasons to Oppose This Experiment

Since this is a randomized experiment, I find it best to analyze it the way we would a grant submitted to a study section. From that perspective, I would triage the CMS proposal for the following reasons: The hypothesis is weak, with essentially no pilot data to support a nationwide experiment, and there are no protections in place to ensure the safety of the patients, who have no say over whether they will be enrolled in this experiment. The fact that it would also financially harm community-based practices and likely lead to site-of-service shifting to more expensive outpatient hospital facilities are additional reasons to oppose this experiment.

Let’s begin with what most of us agree on: (1) Prices of oncology drugs are growing exponentially and are not sustainable in either the short or long term; (2) oncologists do rely on revenues from drugs to keep their practices viable; (3) oncology practices randomized to the experimental group will lose money (the Medicare Payment Advisory Commission [MedPAC] estimates –1.5% in Part B drug revenues and –1.1% in total Medicare revewnues; CMS estimates –0.7%; and ASCO modeling, based on data from 28 practices, predicts losses of about $560,000 for a 15-­physician practice).

The CMS hypothesis, the best that anybody can glean, is that paying oncologists a lower total margin on high-cost drugs and increasing the relative margin on lower-cost drugs (because of the flat fee add-on) would shift prescribing patterns to lower cost alternatives. The evidence to support this hypothesis, even by MedPAC’s own admission,2 is weak and flies in the face of what practicing oncologists know to be increasingly true: In the era of molecularly defined therapy, for many of our patients, there are simply no therapeutically equivalent drugs available at substantially lower costs.

In those cases, the CMS proposal is simply a financial hit to the practices that take money away from subsidized uncompensated areas of care such as social work, phone and e-mail communications, and care management. This comes at a time when CMS is encouraging practices to use these very services for better disease management, which can reduce excessive emergency room visits, avoid unnecessary hospitalization, and decrease inappropriately aggressive end-of-life care—all as part of value-based reforms at the core of the Medicare Access and CHIP Reauthorization Act of 2015 and alternative payment models like CMS’ Oncology Care Model.

Proposal Will Not Lower Drug Costs

There is no reason to believe that lowering the ASP margin would impact the major driver of drug inflation: drug-launch prices. In fact, if we are truly revenue-maximizing machines, as the theoreticians behind these proposals believe, we are still better off using the $20,000 drug with a 0.86% add-on than a $500 drug with the same add-on, even with the added $16.53 per drug per day fee. A rational economic actor would root for higher launch prices. The truth is that this demonstration will do nothing to lower drug-launch prices, and claims to the contrary are a distraction.

There is a more subtle argument related to tamping down price inflation post launch. Because of the 6-month lag in calculating ASP, oncology practices would be less able to absorb price increases if the margin were reduced to 0.86%; therefore, drug manufacturers would feel constrained to keep prices flat. Even if this were the case, the contribution of price inflation to the escalating costs of drugs is a drop in the ocean. Further, it is likely that drug manufacturers would simply factor this lost revenue into their launch prices of future drugs. Regardless, it is a weak argument to justify this massive mandatory national experiment.

Borderline-Unethical Proposal

Whatever one thinks of these arguments, the lack of protection for Medicare beneficiaries under the care of practices randomized to lower payments without the knowledge or consent of the beneficiaries makes this a borderline-unethical proposal. CMS claims it will have safeguards in place to monitor for underutilization, but what they are and how they would work in real time are left unsaid. This is akin to running a phase III clinical trial without specified interim analyses rules or a true data and safety monitoring board for that matter.

It is time for CMS to abandon this ill-conceived rule and work in an open and collaborative fashion with those of us who have dedicated our lives to the care of patients with cancer.
— Blase N. Polite, MD, MPP

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Given the complexity of cancer care, I remain skeptical that any such safeguards using the limited cancer information contained in claims data available to CMS could be put in place. Although none of us believe oncologists would purposely withhold approved therapies because of decreased financial incentives, it flows naturally from the CMS hypothesis that prescribing behaviors are motivated by financial incentives. If CMS believes this, the incentive will be there to undertreat patients. If it does not believe that hypothesis, this experiment has no rationale other than to take money from oncologists and redistribute it to other providers.

Make Your Voices Heard

What we can say for certain about this CMS Part B drug payment proposal is that it would have no tempering impact on the escalating launch prices for oncology drugs and would cause a randomized group of oncology practices to lose money. It would have no impact on drug-prescribing behaviors where no therapeutically equivalent lower-cost alternatives exist and would likely only have marginal impact, at best, where such competition does exist. The proposed change may temporize post-launch inflation, but it also leaves beneficiaries with no realistic protection against underutilization of drugs, shifts in the site of care, or the curtailing of uncompensated supportive services as the result of lost revenue.

ASCO and the oncology community have not shied away from taking on the high costs of cancer care from every angle. We have put forward one of the most detailed alternative payment models of any physician group,3 published a value-based shared decision-making tool,4 and proposed a standardized framework for cancer care pathways.5 These proposals can form the basis of a true transformation in cancer care.

It is time for CMS to abandon this ill-conceived rule and work in an open and collaborative fashion with those of us who have dedicated our lives to the care of patients with cancer. Please contact your Congressional representatives and senators through the ASCO ACT Network (cqrcengage
.com/asco/home), a grassroots engagement tool, and ask them to urge CMS to pull this ill-advised rule. ■

Disclosure: Dr. Polite is a consultant for AstraZeneca and Pfizer.


1. Federal Register: Medicare Program; Part B Drug Payment Model: A Proposed Rule by the Centers for Medicare & Medicaid Services on 3/11/2016. Available at Accessed June 30, 2016.

2. MedPAC: Value-Based Incentives for Managing Part B Drug Use. Available at Accessed June 30, 2016.

3. ASCO: Patient-Centered Oncology Payment: Payment Reform to Support Higher Quality, More Affordable Cancer Care, May 2015. Available at Accessed June 30, 2016.

4. Schnipper LE, Davidson NE, Wollins DS, et al: American Society of Clinical Oncology Statement: A conceptual framework to assess the value of cancer treatment options. J Clin Oncol 33:2563-2577, 2015.

5. Zon RT, Frame JN, Neuss MN, et al: American Society of Clinical Oncology policy statement on clinical pathways in oncology. J Oncol Pract 12:261-266, 2016.