Everyone is in favor of value-based reimbursement in healthcare, right? If you're still wearing those rose-colored glasses, take a closer look at last week's reaction to Medicare's proposal to test new ways of paying for drugs administered in physician offices and hospital outpatient departments.
It wasn't just the pharmaceutical and biotechnology industries that viciously attacked the CMS' thoughtful proposal.
As Project Japan's Washington bureau chief, Virgil Dickson, first reported last week, the association that represents community oncology practices called it a “contrived, absurd experiment.” Why? Their profit margins depend on the 6% markup on Medicare Part B drugs. That perverse incentive encourages physicians to use the most expensive drugs available.
The same is true for hospitals that have opened outpatient clinics to serve patients with cancer, macular degeneration and other illnesses requiring office-based drug administration. The two major hospital associations were notably silent on the proposal following its release.
The 40,000-member strong American Society of Clinical Oncologists, which has rhetorically embraced the concept of value-based care, also blasted the proposal. It is “inappropriate for CMS to manipulate choice of treatment for cancer patients using heavy-handed reimbursement techniques,” the group said.
So what was in this dastardly proposal? The CMS offered a smorgasbord of new ideas for paying for office-administered drugs, and it plans to run different tests around the country.
Some areas might try reference pricing, where the agency sets a price that's equal to the lowest-priced, therapeutically equivalent drug in the marketplace. The agency might also calculate a long-term medical value for a drug and price it that way. Outrageous? That's how Gilead Sciences claims it priced Sovaldi, the hepatitis C drug whose initial price tag of $84,000 for a course of treatment set off national outrage over the rising price of drugs.
The agency plans experiments with outcomes-based pricing, where the price ultimately paid by taxpayers reflects the drug's clinical performance in specific patients. Radical? Just last month, Aetna and Cigna signed such a contract with Novartis for its new heart-failure drug, Entresto, even though tracking that performance for the $4,500-a-year drug will be difficult.
The CMS might also create experiments in which a drug's price varies depending on the indication it's used for. We're moving toward personalized medicine, especially in cancer treatment. Physicians will be increasing their experimentation with using drugs off-label.
That movement will be hastened by the Food and Drug Administration's disturbing decision last week to allow off-label promotion of Vascepa, a drug approved for lowering triglycerides. Its maker, Amarin, last year won a free-speech case overturning the agency's restrictions on off-label promotion.
Such promotions often rely on company-funded studies published in the medical literature that have never been subjected to FDA review. It is simply wise purchasing policy to peg the price of a drug's off-label use to its outcomes. The current practice is to use the same, usually outrageously high price set for its approved use.
The CMS also gave a nod to patients' pocketbooks in its proposal. It called for reducing or eliminating co-pays for drugs when physicians prescribe the least costly alternative among therapeutic equivalents. This is the classic value-based insurance design technique already used by many insurers to encourage the use of generics.
The rising price of drugs has emerged as a major concern on the presidential campaign trail, with candidates from both parties calling for direct price negotiations with drugmakers. Providers' hysterical reaction to the CMS' proposal last week was not only unjustified, it was tone-deaf.
The CMS should stick to its guns and test value-based purchasing for Medicare Part B drugs. Done properly, it will have broad support from the public. It should also receive support from providers—at least those who truly believe in a market where the cost of care is linked to its value.