Providers could face a 40% cut on average to their Medicare Part B drug reimbursements under legislation that gives Medicare the power to negotiate a small amount of drug prices in Parts B and D, a new analysis finds.
The analysis, released Thursday by consulting firm Avalere, examines the effect of a drug pricing negotiation framework that was included in a roughly $2 trillion package that passed the House on Friday.
The legislation would enable the Department of Health and Human Services to negotiate prices on 10 select products on Parts B and D in addition to all insulin products.
However, Avalere found that the negotiation framework will result in cuts to reimbursements for providers for Medicare Part B drugs, which are typically administered in a doctor’s office. Providers are reimbursed by Medicare the average sales price of the drug plus a 6% add-on for storage and handling costs.
Instead of tying the reimbursement to the average sales price, Medicare would reimburse providers based on the maximum fair price plus the add-on.
The analysis found that the negotiations would lead to a total reduction of 39.8% in add-on payments across all providers that administer Part B drugs likely to be targeted for negotiation, Avalere said.
However, physicians’ offices would be harder hit than outpatient departments run by hospitals. Such offices would see a 44.2% cut versus 36% to hospital outpatient departments.
“These cuts would occur even though the overhead expenditures for negotiated products are likely to remain the same as they are today,” the analysis added.
It also finds that oncology and rheumatology practices, which administer more Part B drugs, would be the hardest hit.
“Medical oncology, hematology/oncology and rheumatology practices would experience reductions of 42.9%, 41.3% and 48.5% respective, in add-on payments,” Avalere added.
But experts say providers could face other trickle-down effects onto commercial and Medicare Advantage reimbursement, where contracts are still tied to the average sales price.
“Outside of Medicare, there are still a number of commercial and MA contracts that anchor to a similar structure of [average sales price] plus some add-on,” said Milena Sullivan, a principal with Avalere’s health policy practice and one of the authors of the analysis. “For those contracts, the reimbursement would be lowered as well through those cascading effects.”
The commercial payers would also wish to eventually lower the prices they pay in order to match the Medicare-negotiated prices, Sullivan told Fierce Healthcare.
The overall impact of the provider cuts could vary across specialties and the mix of patients that providers see who are on Medicare.
“When faced with the decision of whether to lose money on Medicare patients or refer the patients to a hospital setting, it would be very reasonable to assume those patients would be referred to a hospital where we know the costs are higher,” she said. “The expected savings could be blunted.”
Another potential impact is that providers could decide to prescribe only Part B drugs that are not negotiated by Medicare, including if there are any therapeutic equivalents to the negotiated products. Such a move would also blunt any expected Medicare savings, Sullivan said.
This is the latest cut that providers could face under the $2 trillion package, which would also close the Medicaid coverage gap. The package would cut disproportionate share hospital payments that help reimburse facilities for uncompensated care.
The cuts would only affect hospitals in states that have not expanded Medicaid. Democrats have argued that the larger disproportionate share hospital payments won’t be needed due to the expansion in coverage, but hospital groups have charged that the payment cut will still harm safety net providers that operate on thin margins.