In June, the Medicare Payment Advisory Commission (MedPAC) released their final annual report to Congress detailing recommendations on a variety of Medicare payment system issues.

Specifically, MedPAC focuses on nine key issues:

• Using competitive pricing to set beneficiary premiums in Medicare;
• Medicare’s new framework for paying clinicians, developing a unified payment system for post-acute care;
• Developing a unified payment system for post-acute care;
• Medicare drug spending in its broader context;
• Medicare Part B drug and oncology payment policy issues;
• Improving the Medicare Part D prescription drug program;
• Improving efficiency and preserving access to emergency care in rural areas;
• Telehealth services and the Medicare program, and issues affecting dual-eligible beneficiaries; and
• Issues affecting dual-eligible beneficiaries: CMS’s financial alignment demonstration and the Medicare Savings Programs.

Notably among MedPAC’s nine key issues are their recommendations under “Medicare Part B drug and oncology payment policy issues” and “Improving the Medicare Part D prescription drug program Medicare Part D.”

First, in examining the Medicare Part B drug program, MedPAC recommends potential modifications to the way Part B pays for drugs in general, including restructuring the average sales price (ASP) add-on payment, promoting price competition and reducing dispensing and supplying fees.  Currently, payment for Part B-covered drugs is based on ASP plus a six-percent add-on fee.  Although MedPAC acknowledges that no study has been done on the issue, there is concern that this add-on fee may provide an incentive for use of higher priced drugs when a lower priced alternative is available.  Modeling suggests that changing the current six-percent add-on fee to a flat fee would reduce Part B drug spending by 1.3 percent.  While the add-on fee is a concern, the drug pricing itself is still the largest component to Part B payments. Therefore, consideration should also be given to create more incentives for price competition for Part B drugs in general in order to lower the ASP. 

MedPAC also reviewed approaches to improve quality and efficiency of oncology care under Medicare Part B, as more than half of Part B drug spending is associated with anticancer drugs.  The report presents four different approaches on how to improve the efficiency of oncology care.  Two approaches look at the use of clinical pathways and risk-sharing agreements between payors and product manufacturers to improve the value of drug spending, while the other two look at the bundling of Part B oncology drugs with non-oncology services in order to hold providers accountable for the total cost of care.

The report also addresses improving the Medicare Part D prescription drug program, including a plan to give sponsors greater financial incentives and better tools to manage benefits for high-cost enrollees.  Other recommendations for Part D include excluding manufacture discounts on brand-name drugs from counting as enrollees’ true out-of-pocket spending, and moderately increasing financial incentives for those who receive the low-income subsidy to use lower cost drugs and biologics. 

As previously reported, MedPAC discussed these changes and other Part D changes during its March 2016 meeting.

Reporter, Kiel Yager, Sacramento, +1 (916) 321-4811, kyager@kslaw.com.