Recently, the Centers for Medicare & Medicaid Services (CMS) Innovation Center proposed a demonstration to test new strategies to pay for medications that are covered under Part B. Most prescription medications are covered under Medicare Part D, but some (mostly those administered by a doctor) are paid for under the outpatient Part B benefit.

Common Part B prescription drugs treat cancer, macular degeneration, anemia, and arthritis. Part B medications tend to be very expensive—in 2013, Medicare and its beneficiaries spent $19 billion on Part B prescriptions. The proposed demonstration is designed to evaluate different strategies for pricing medications to discover the policy that will best ensure that people with Medicare receive the highest value Part B medications available.

Currently, Medicare pays for Part B prescription drugs according to a simple formula—the Average Sales Price of the prescription drug plus a 6 percent markup to cover the cost of handling and administration. The proposed demonstration has two phases. First, the Innovation Center will alter the percentage markup to a flat handling fee plus 2.5 percent of the cost of the medicine. CMS hopes that this will decrease the incentive for providers to choose more expensive medicines under the current payment strategy.

In the second phase, the Innovation Center will test strategies to adjust the base price to reflect the medication’s value to beneficiaries. These include:

• reducing the base beneficiary cost-sharing of 20 percent for high-value options;
• setting a standard price for medications that function similarly;
• paying more for a medication that is used to treat a condition when it has high effectiveness, and less for the same medication that is used to treat illnesses when it may be less successful; and
• obtaining rebates or refunds from pharmaceutical companies if medications are less effective than expected.

As a long-time advocate for solutions to lower the cost of Part B medications, Medicare Rights supports the proposed demonstration and will provide comments to the Innovation Center on how to proceed with testing to ensure that beneficiaries continue to receive the treatments best suited to their needs.