On March 8, 2016, CMS released a proposed rule on implementation of a new two-phase Medicare Part B Drug Payment Model (the “Model”) that would test whether alternative payment approaches would lead to a reduction in Medicare expenditures, while preserving or enhancing quality of care.  Comments are due by May 9, 2016. 

Medicare Part B generally covers drugs furnished incident to a physician’s services, drugs administered via a covered item of durable medical equipment (“DME”), or certain other drugs specified by statute.  In most cases, payment is based on the average sales price (“ASP”) plus six percent, such that more expensive drugs receive a higher add-on payment amount than less expensive drugs.   Under the first phase of the Model, CMS would test an alternative ASP add-on approach, paying ASP plus two-and-a-half percent, plus a flat fee alternative add-on amount of $16.80, which would be updated at the beginning of each year by the consumer price index for medical care for the most recent twelve-month period.  CMS is soliciting comments on whether it should also test an additional approach, such as an ASP plus a tiered percentage add-on amount.   

In the second phase of the Model, CMS would test the application of a group of value-based purchasing tools used by commercial and Medicare Part D plans, such as value-based pricing strategies and clinical decision support tools.  With respect to the value-based pricing strategies, CMS is proposing to include one or more of the following tools:  reference pricing, indications-based pricing, outcomes-based risk sharing arrangements and discounting or eliminating patient coinsurance amounts.  CMS would implement these tools in a limited manner, applying these strategies to a specific group of drugs identified by HCPCS code.  CMS is soliciting comments on creating value-based purchasing arrangements directly with manufacturers and taking an episode-based or bundled pricing approach, as well as the applicability of the Part B Drug Competitive Acquisition Program.  

Model participants would be determined by geographic location, and participation would be mandatory for the providers and suppliers (including physicians) who furnish Part B drugs that are included in the Model if the provider or supplier is located (or services are billed) in the geographic areas selected for inclusion in the Model.  CMS proposes that the Model run for five years, with the first phase of the Model beginning in the fall of 2016 (no earlier than 60 days after the rule is finalized), and second phase beginning no sooner than January 1, 2017. 

For a copy of the Proposed Rule, please click here.  For a copy of the CMS Fact Sheet, please click here, and for the CMS Press Release please click here.   

Reporter, Kerrie S. Howze, Atlanta +1 404 572 3594, khowze@kslaw.com.