Medicare Experiments in Curbing Financial Incentives for Physicians to Prescribe Costlier Drugs
By Margot Sanger Katz, New York Times
Suppose you’re an eye doctor and you’re treating a patient with macular degeneration, a disease that can cause blindness. You have the choice of giving one of two drugs — one that costs $2,000 per treatment and another, very similar one that costs $50 per treatment.
Do you think it would influence your decision if you were paid $117 more if you chose the more expensive drug?
That is essentially the system we have now. For doctors who give drugs in their offices, mostly cancer, eye and arthritis specialists, Medicare asks them to buy the drugs themselves and then pays them back when they give the drugs to patients. Currently, Medicare pays doctors the average sales price of the drug, and tacks on a 6 percent bonus to cover administrative costs. Obviously, 6 percent of $2,000 is a lot more than 6 percent of $50.
Doctors argue that they choose drugs based on what’s most medically appropriate for their patients — and most probably do. But several analysts have looked at this policy and determined that it creates the wrong kind of incentives for doctors — encouraging them to choose pricier treatments even if they are no better than cheap ones.
Some studies have found evidence that the system has actually shifted doctors toward the more expensive drugs. President Barack Obama has repeatedly proposed changing this policy in his annual budget, and the Medicare Payment Advisory Commission, which studies the program for Congress, has also suggested an end to the 6 percent premium.
On Tuesday, his administration took action on its own authority through the Affordable Care Act. Medicare announced that it would use those broad new powers to test out a new system, to see if reducing the financial incentives for prescribing expensive drugs might change the choices that doctors make. The agency is setting up a sort of randomized experiment, keeping the system intact for doctors in some parts of the country, while introducing a new payment method for doctors in a set of communities.
Doctors in the experimental places will no longer get paid 6 percent of the cost of the drug to cover their overhead. Instead they will get 2.5 percent of that cost, plus a flat fee, regardless of the price of the drug. Under the new system, the difference in payment for the expensive eye drug, Lucentis, will be less than $50 more than the cheaper alternative, Avastin.
Medicare isn’t changing the direction of the incentive — there’s no bonus for picking a cheaper choice — but it’s narrowing the payment gap between different drugs. Peter Bach, an oncologist and the director of the center for health policy and outcomes at Memorial Sloan Kettering Cancer Center, compares the new system to UPS: We pay the company a fee for moving the box, but we don’t pay different prices based on the value of the box’s contents.
The Centers for Medicare and Medicaid Services, the government agency that runs Medicare, devised the new payments to be budget-neutral. That means that it expects, overall, that Medicare will pay doctors the same amount. But the change will clearly have effects for some individual physician offices. Doctors who prescribe a lot of newer, more expensive drugs will earn less than they used to. Doctors who already prescribe a lot of cheaper, older drugs may get a raise. Doctors who tend to pay above-average prices for drugs — like small, independent practices — may have more trouble covering the cost of certain drugs, and could run into financial trouble. Most community doctors and large hospitals should not see a huge change, the government estimates.
The proposal, which was accidentally published in draft form in February, has infuriated several groups of cancer doctors. They argue that there’s not enough evidence of malfeasance in the current system to be worth the possible harm to doctors and drugmakers — and theoretically to patients.
The government is “proposing a mandatory experiment on seniors’ cancer care,” Ted Okon, the executive director of the Community Oncology Alliance, a trade group for small oncology practices, said in an email. “The policy regulators, without any supporting data, are, in effect, saying that seniors under Medicare are receiving inappropriate cancer treatment.”
The pharmaceutical industry is also worried. Any policy that steers doctors away from newer drugs could cut into their sales. The lower margin on drugs will also make it harder for drugmakers to raise prices without hurting doctors. There’s a time lag between when prices in the market shift and when the government starts paying those new prices. That means that, with a smaller percentage bonus, price increases could cause doctors to lose money on drugs while they wait for the Medicare price to catch up.
Before Obamacare, a payment change this large would have required new legislation. But the health law allows Medicare to introduce pilot programs and experiments and expand them nationwide if they measure up. Earlier, such experiments were voluntary, but the drug pilot is one of a small number of tests that are now mandatory for doctors and hospitals who practice in certain parts of the country.
In abstract terms, the program’s mandatory, regional design is a great way to test whether new payment incentives can lead to more rational, and perhaps less expensive, prescribing behavior.
But the reality is that the change may have negative consequences for doctors and hospitals whose payments will drop.
“Does it make a ton of sense in theory? Yes. Is it a more rational payment system? Yes,” said Caroline Pearson, a senior vice president at the health consulting firm Avalere Health. “But in the meantime, it causes a lot of disruption.”
To Learn More:
Doctors, Hospitals and Big Pharma Benefit from $3 Billion Worth of Wasted Cancer Medicine per Year (by Linda A. Johnson, Associated Press)
U.S. Doctors Prescribe Opiate Painkillers at Twice the Rate of any other Country…and 500,000 Veterans are Dependent (by Steve Straehley, AllGov)
Drug Companies and Doctors Boost Profits Pitching Attention Deficit Disorder (by Noel Brinkerhoff, AllGov)
Billions Wasted as Medicare Turns Blind Eye to Excessive Brand-Name Drug Prescriptions (by Noel Brinkerhoff and Danny Biederman, AllGov)
Radiation More Often Prescribed by Doctors with Financial Interest in the Treatment (by Noel Brinkerhoff, AllGov)
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