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CMS Seeks Comment on Potential Medicare Drug Payment Model

In an advance notice of proposed rulemaking, the Centers for Medicare & Medicaid Services (CMS) seeks feedback on a potential drug payment model that would go into effect in spring 2020.

The advance notice is an early step in the rulemaking process — if CMS decides to proceed with the model, proposed and final regulations would follow next year. Comments are due to CMS by Dec. 31.

The five-year demonstration would fall under the authority of the Center for Medicare & Medicaid Innovation. The model would be open to hospitals and physicians in selected geographic areas representing 50 percent of Medicare Part B spending on separately payable drugs.

Under the model, designated vendors would negotiate with manufacturers for Medicare Part B drugs, purchase these drugs, and distribute them to physicians and hospitals. Providers would receive drugs from these vendors, who then would bill Medicare for the drugs. This would replace the current buy-and-bill system, in which providers directly purchase drugs and bill Medicare themselves. CMS seeks comment on the types of entities that could participate as vendors, such as group purchasing organizations, wholesalers, distributors, specialty pharmacies, individual or groups of physicians and hospitals, manufacturers, and Part D sponsors.

The model would cover single-source separately payable drugs and biologicals in the first year, expanding to other Part B drugs in subsequent years. CMS would pay vendors for the included Part B drugs based on a phased-in target price, which would be determined using an international price index (IPI). The IPI is calculated using the average international price for each Part B drug based on drug pricing data from 14 countries. Providers in the model would continue to receive a drug administration fee in addition to a set add-on amount that would replace the current add-on of 6 percent of average sales price (ASP). Unlike the current ASP methodology, the add-on would not be based on the ASP of each specific drug, which CMS believes promotes the use of higher-cost drugs.

Over five years, CMS projects the model will reduce Medicare drug spending by $16.3 billion and Medicaid spending by $1.6 billion.

In the advance notice, CMS also discusses implications for the Medicaid drug rebate program and the 340B Drug Pricing Program. Hospitals participating in the 340B program in geographic areas covered by the model would receive Medicare drugs through the model vendors.

Contact Senior Director of Policy Erin O’Malley at eomalley@essentialhospitals.org or 202.585.0127 with questions.

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About the Author

Shahid Zaman is a senior policy analyst at America's Essential Hospitals.