• by Thom Forbes  @tforbes, March 9, 2016

Against a backdrop of all prescription drug prices rising 12.6% in 2014 and growth believed to have “remained elevated” last year — the Obama administration announced yesterday that it would test six new ways to pay for drugs for those covered by Medicare Part B — an estimated 55 million people in total at present.

“The proposed regulations, unveiled Tuesday, would initially affect a relatively small share of the nation’s nearly $500-billion drug tab” — specifically drugs that are administered by physicians, such as ones for chemotherapy, reports Noam N. Levey for the Los Angeles Times. “But if widely implemented, they could overhaul the way Medicare, America’s largest insurer, pays for drugs, by linking payments to the effectiveness of medications, not just their prices.”

Even that small slice, however, represents $20 billion (or about the projected 2020 figure for legal weed sales in the U.S.). And the total Medicare pie currently represents 55 million people and is expected to reach 92.8 million by 2050.

Patrick Conway, chief medical officer for the Centers for Medicare and Medicaid Services, which is making the proposal, “called the current system — in which doctors are paid the average sales price plus 6% for handling and administration costs — a ‘perverse incentive structure that doesn’t benefit patients or the system.’ He said oncologists have told CMS they sometimes feel pressure from their health-care systems to pick more expensive drugs to bolster profits,” reports Laurie McGinley for the Washington Post.

“Under one proposal, Medicare would set a standard payment rate, or benchmark, for a group of ‘therapeutically similar drug products,’” writes Robert Pear for the New York Times. “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.” 

According to Conway, “different methods will be tested in different parts of the country,” Pear reports.

The CMS’ recommendation “is likely to draw opposition from the pharmaceutical industry and oncologists, who have criticized similar proposals from policy experts and from the Medicare Payment Advisory Commission (MedPAC), which provides guidance to Congress,” writes Julie Appleby for Kaiser Health News. 

In a report last year, MedPAC suggested that moving to a flat-fee “might increase the likelihood that a provider would choose the least expensive drug in situations where differently priced therapeutic alternatives exist,” but also might “create incentives among some providers to overuse these drugs or spur manufacturers of low-priced drugs to raise their prices.”

In any event, the Pharmaceutical Research and Manufacturers of America opposes the CMS’ proposal, maintaining that “the current Medicare Part B drug payment methodology is an effective, market-based pricing mechanism that works to control costs,” in a statement yesterday. “Proposing sweeping changes … without thoughtful consideration and stakeholder input is not the right approach and puts Medicare patients who rely on these medicines at risk,” it charges. 

Public comments on the proposals will be accepted until May 9.

All told, Americans spent $457 billion — or 16.7% of the entire health-care services pie — on prescribed medications in 2015, according to an issue brief separately released yesterday by the assistant secretary for planning and evaluation of the U.S. Health and Human Services Department. Of that amount, 71.9% was for retail drugs and 28.1% was for non-retail drugs such at those administered at hospitals.

Four factors contributed to the increase, according to the findings: “10% … was due to population growth; 30% to an increase in prescriptions per person; 30% to overall, economy-wide inflation; and 30% to either changes in the composition of drugs prescribed toward higher price products or price increases for drugs."

“The office also noted that the dramatic increase in drug spending came after years of relatively slow growth, particularly from 2008 through 2012, when drug spending inflation averaged just around 2% annually,” reports CNBC’s Dan Mangan.

“The rising cost of prescription medicines is putting pressure on public and family budgets in the United States,” according to the opening sentences of the brief. “A recent nationally representative poll of more than 1,200 adults found that the affordability of prescription drugs tops the public’s list of priorities for the President and Congress, including ‘making sure that high-cost drugs are affordable to those who need them’ and ‘government action to lower prescription drug prices.’”