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Medicare prods docs to prescribe cheaper drugs

By Jennie L. Phipps ·
Tuesday, March 15, 2016
Posted: 10 am ET
Injections are common treatments for certain eye diseases such as Wet Macular Degeneration. Image Source/Stuart Westmorland/Getty Images

Eye injections are a common way to treat certain eye diseases. Image Source/Stuart Westmorland/Getty Images

Last week Medicare announced that it was experimenting with a new way of paying doctors for administering drugs. The agency hopes the new change in its prescription drug models will lower how much patients have to pay for them.

Some of the most expensive drugs covered by Medicare Part B are those administered in doctors' offices, including cancer medications, injectable antibiotics and treatments for eye diseases. In 2015, Medicare spent $20 billion on drugs administered by doctors and hospital outpatient departments. This doesn't include drugs sold through the Medicare Part D prescription drug program.

Medicare reimburses doctors who prescribe these drugs 106% of their average sales price. In other words, if the drug sells for $1,000, the doctor is paid $1,060. If the drug costs $100, the doctor gets $106. "Studies have shown that this payment structure encourages doctors to prescribe higher-cost medications even though there are lower cost alternatives that are just as effective," says Stacy Sanders, federal policy director for the Medicare Rights Center. "We hear from people who simply can't afford these medicines and unless their physician has made them aware that there are lower cost alternatives, they have no way of knowing that."

Among other things, the new rule would:

  • Lower the payment to 2.5% of the sales price plus a flat fee payment of $16.80 per drug per day, making it less attractive for doctors to choose expensive drugs.
  • Eliminate patient cost sharing, or at least reduce it so patients have an incentive to take the most effective drugs, even if they are expensive.
  • Introduce pricing that reflects the outcome of a drug. The reimbursement rate for more effective drugs would be higher than for less effective ones.

While taxpayers and buyers of insurance should appreciate Medicare's moves to cut costs, patients should be the biggest beneficiary -- particularly the 12% of Medicare patients who don't have a Medicare Advantage, Medigap or other insurance policy that covers the 20% coinsurance that Medicare patients are charged.

"These proposals encourage prescribers to be more thoughtful about what they prescribe, and they have the potential to make these medicines -- which are some of the most expensive medications around -- far more affordable for people," Sanders says.

If you'd like to tell Medicare your opinion about this proposal, there is a 60-day comment period through May 9, 2016.

Here's more on why rising prescription drug costs hurts everyone.

Follow me on Twitter @jennielp.

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March 17, 2016 at 10:16 am

It should be mandatory generics only, unless one is not available. I understand that some generics do not work for people due to the binding agent or release agent. For those so few exceptions, then exceptions should be made for those people. In my 15 year career working in benefits, I have had only two people unable to take a generic version of their medication. Think of all the cost savings!!!! It is a great thing!!!!

Steve Vinzinski
March 15, 2016 at 7:26 pm

Very nice article by Ms.Phipps.Medicare has been asking the Doctors to prescribe more generics for some time.In fact to give you an example my wife and me have multiple disabilities. Between the two of us we take over twenty prescriptions a day.Every one is generic but one.The problem is we have a good Medicare wrap around and many insurance companies do not always carry your generic.What most people do is buy the drug and use Good Pharmacy for that particular drug.One must understand in 2013 we paid $48,000.00 in insurance premiums and out of pocket medical.In 2014 and 2015 the cost was in the $30,00.00 range each year.I anticipate and moderate increase this year.I really hope Medicare can obtain some compliance with the Doctors.