OIG: CMS must expand Part B price substitution to get more savings

Medicare spending costs money
A Department of Health and Human Services watchdog said the Centers for Medicare & Medicaid Services could save Medicare more money if it adopts a stricter policy for determining Part B reimbursements. (Getty/zimmytws)

Medicare could have saved its beneficiaries nearly $3 million a year if it adopted a stricter policy for lower prices for Part B drugs, a Department of Health and Human Services (HHS) watchdog found.

A recent report from HHS’ Office of Inspector General (OIG) that found the Centers for Medicare & Medicaid Services (CMS) could lower reimbursements for physician-administered drugs in Medicare Part B by changing the basis for price substitution. The report comes as CMS and HHS are exploring several ways to lower Part B prices, including implementing prior authorization and tying prices to those paid overseas.

CMS reimburses a doctor or hospital for the average sales price (ASP) of a Part B drug, plus an additional 6% of that price to the provider for storage and handling. OIG is required to compare the ASP with the average manufacturer price.

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If the watchdog finds that the ASP for a drug exceeds the average manufacturer price by 5%, then HHS must substitute the ASP with a lower rate.

“Through regulation, CMS outlined it would make this substitution only if the ASP for a drug exceeds the [average manufacturer price] by 5% in the two previous quarters or three of the previous four quarters,” the report said.

OIG looked at drug utilization data for the fourth quarter of 2017 through the third quarter of 2018 to account for the three-quarter lag between reporting of pricing data and the application of price substation, the report said.

CMS lowered the Part B reimbursement for 14 drugs after OIG’s analysis of 2017 data, saving Medicare $7 million over a year. But OIG said that Medicare could have saved an additional $2.9 million a year if it changed the substitution policy.

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The watchdog said price substitution policy should trigger if the ASP exceeds the manufacturer price for a single quarter.

The report’s recommendation comes as HHS has tried to find ways to lower prices on Medicare Part B. Unlike Part D, there are no private plan negotiations to lower prices. Medicare spent nearly $30 billion on Part B drugs in 2016, an increase of nearly 13% from 2015, according to data from the Medicare Payment Advisory Commission.

In August 2018, CMS allowed Medicare Advantage plans to implement formulary management tools, step therapy and prior authorization for Part B drugs. The new change went into effect this year.

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HHS and CMS are also exploring a demonstration model that would tie prices paid for certain Part B drugs to cheaper prices paid overseas. The International Pricing Index project was announced last year but has yet to be officially proposed.

CMS Administrator Seema Verma recently told reporters that the demonstration was still a “top priority” for her agency but did not give a timetable for its proposed rule.