The Centers for Medicare & Medicaid Services (CMS) recently released the results of a major study on the move to cost-plus reimbursement for Medicare Part B drugs. Here’s the link: Part B Drug Payment Reform: Lower Expenditures without Signs of Adverse EffectsDid the world end once Average Wholesale Price (AWP) reimbursement stopped? Nope. Using claims data associated with more than 45,000 physicians, the wonky researchers from Mathematica found that the switch to cost-plus reimbursement for Part B pharmaceuticals:
- Slowed the growth of Medicare Part B expenditures
- Lowered physician payments (and probably income) for certain specialties
- Reduced beneficiaries’ out-of-pocket liabilities
- Did not significantly affect the site of drug administration for patients
One more thing. Expect anyone affected by this margin pressure to oppose publication of these data.
COST-PLUS = COST SAVINGS
Medicare Part B switched to a cost-plus reimbursement method for physician-administered injectable drugs as well as some self-administered drugs such as oral anticancer drugs and immunosuppressive drugs. The reimbursement benchmark—Average Sales Price (ASP)—is published on the CMS site and is increasingly used by commercial payers. See The ASP Future is Here for some background.
After the Medicare payment rate changed from one based on AWP to 106% of ASP in 2005, spending declined by 7.8% compared with 2004 spending. Spending increased only 4.7% in 2006 and 4.5% in 2007 compared with an average annual growth rate of 25% per year from 1997 to 2003.As Keanu Reeves would say: Whoa.
LESSONS FOR RETAIL PHARMACY
Today, retail pharmacy margins on generic drugs get compressed via payor-specific maximum allowable cost (MAC) limits. See Won’t get FULed again.
In contrast, average-price models tightly define the window of generic profit opportunity. Providers and drug distributors still profit from brand-to-generic switches in an ASP-based model, but average market prices dictate the pace of profit decline. I walk though a mathematical example in Generic Drug Profits: Too High or Appropriate Incentive?
The publication of AMP data will have a similar effect on retail pharmacy channels. The new AMP definition will have a less pronounced effect because of smoothing and the new retail class-of-trade.
Back in 2006, NACDS and NCPA successfully won an injunction against CMS that prevented CMS from adopting the AMP-based pharmacy reimbursement formula and publishing AMP data. See No AMP for You!
As I understand today's situation, CMS has a legislative mandate to implement AMP without issuing any final regulations (per section 2503 of the Patient Protection and Affordable Care Act).
Will the pharmacy trade association try to prevent AMP from being published without further regulations? Seems likely to me given what's at stake.
P.S. Yes, there really is a drink called AMP Relaunch—the Official Energy Drink of Health Care Reform!
