This weekly column offers opinions on the latest pharmaceutical industry news.
Imagine going to your doctor for an injection, but instead of administering a medicine that costs $500, the physician chooses a $3,000 alternative.
In an era of growing angst over the cost of medicines, this might seem counterintuitive. But doctors often have an incentive for choosing pricier drugs: a higher reimbursement from the government.
Under the Medicare Part B program, which covers injectable and infused treatments for the elderly, physicians and hospitals buy a medicine, and the government reimburses the average sales price plus 6 percent.
Physicians say they choose the most suitable treatment for patients, regardless of price. But critics point to studies showing reimbursement levels can influence some doctors to favor more expensive medicines.
So last week, the Obama administration released a proposal that would revamp the incentives in hopes of encouraging greater use of lower-cost, but equally effective treatments.
“This could be a real reshuffling of the deck,” said Dan Mendelson, who heads Avalere Health, a consulting firm. “If it goes into effect, it will realign a payment system that is out of whack. But it will also create winners and losers.”
Among the potential winners: the US taxpayer. As for losers, some doctors groups and drug makers already oppose the plan.
“It’s misguided,” said Ted Okon, executive director of the Community Oncology Alliance, a trade group that represents smaller cancer clinics. “It’s all about cutting payments, pure and simple. Everything else is window dressing.”
Many details must still be worked out, especially since the government wants to run a five-year, national test. Uncertainty aside, though, the notion is worth exploring, because it holds the potential for keeping down health care costs.
Under the proposal, the reimbursement formula would be altered so that physicians would be paid the average sales price of a medicine, as well as another 2.5 percent and a flat fee of $16.80.
The math can get complicated depending upon the drugs being compared, but there is little doubt that the change could force physicians to alter their financial calculus — and their behavior.
“This will upend their business model,” said Dr. Peter Bach, director of the Center for Health Policy and Outcomes at the Memorial Sloan Kettering Cancer Center.
Not surprisingly, some physicians are furious, because they believe the government will unfairly penalize them for administering more expensive medicines. They also argue that changing reimbursement formulas does nothing to lower drug prices.
Some drug makers, meanwhile, are concerned about taking a financial hit, because any emphasis on lower-cost medicines could translate into less revenue.
The proposed change “puts patient access and quality of care at risk, and can also undermine incentives for discovery,” said Randy Burkholder, vice president of policy and research at the Pharmaceutical Research and Manufacturers of America, the industry trade group.
That likely overstates the case. One Wall Street analyst, Geoffrey Porges of Leerink, wrote in a note to investors that the White House proposal may “subtly alter the competitive dynamics.” But he maintained that the plan “is unlikely to have a material impact on the use of such medicines or to drastically alter market share.”
A key reason is that no one really knows exactly how the reimbursement changes may play out. The government estimated that had the proposal already been in effect, Medicare Part B payments to oncologists, which totaled $1.2 billion in 2014, would decline by 0.7 percent this year, compared with a 1.3 percent increase in reimbursements for all physician specialties.
But those numbers, for now, remain only best guesses.
“What we don’t know is whether this will change prescribing patterns,” said Chuck Shih, a health care economist at the Pew Charitable Trusts. “The truth is we have very little data on what the effect will be.”
In the end, this is truly a grand experiment. But it should be pursued, nonetheless.
Demonizing doctors is not the solution, but realigning the Byzantine economics of the Medicare system is warranted. Any test that seeks to maintain current levels of patient care while putting a lid on health costs is worth taking.
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