Specialists, Hospitals Face Payment Cuts Under Proposed CMS Rule

Hospital outpatient departments may take biggest hit

Proposed changes in Medicare payments for physician-administered drugs would reduce reimbursements for treatments that cost more than $480 per day starting in the fall of 2016, according to a new analysis from Avalere Health. As a result, specialists who use higher-priced drugs, including oncologists, rheumatologists, and ophthalmologists, face reduced payments, even though many of the expensive treatments do not have lower-cost alternatives. The analysis found that seven of the 10 drugs that qualify for the largest reductions in reimbursement are used to treat cancer.

In March, the Centers for Medicare and Medicaid Services (CMS) proposed the new rule in an effort to justify how Medicare pays for physician-administered drugs, such as infused chemotherapy, under Part B. The rule’s objective is to eliminate financial incentives for providers to prescribe more-expensive drugs. If the rule is finalized, its first phase would change Medicare payments for approximately half of providers from 106% of a drug’s average sales price (ASP) to 102.5% of the ASP, plus a flat fee of $16.80 per drug per day. Payments to physicians would be further reduced by 2% as a result of budget sequestration. The payment changes would begin in the fall of 2016 and would continue for five years while the CMS evaluates the model’s impact.

Initially, the proposed changes would result in higher or lower payments for particular products, Avalere found. Specifically, drugs that cost providers more than $480 per day on average would receive lower reimbursement under the new model, whereas products costing less than $480 would receive higher payments than what occur today. Because Medicare beneficiaries without supplemental insurance coverage are responsible for 20% of the payment, beneficiary out-of-pocket costs would increase for lower-cost drugs (i.e., those below $480 per day).

Specialists who use more-expensive drugs would receive reduced Medicare reimbursements for these products, whereas specialists who use lower-cost drugs would be paid more than under the current system. Hospital outpatient departments are projected to lose the most revenue as a result of the changes—accounting for 60% of all payment reductions under the new CMS model. Ophthalmologists are the most-affected specialty group, accounting for 18% of all of the payment reductions. 

Source: Avalere Health; April 7, 2016.