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A congressional committee is holding a hearing on Tuesday to discuss a controversial plan to revamp Medicare Part B, but despite considerable pressure from lawmakers, the Obama administration appears determined to launch its experiment this summer with few, if any changes, according to Wall Street analysts.

At issue is an attempt by the administration to encourage greater use of lower-cost, but equally effective, medicines covered by the Part B program, which pays for injectable and infused drugs for the elderly. The move reflects growing concern over the rising cost of medications, a hot-button topic that is straining public and private payer budgets, and angering Americans.

The administration hopes to lower its drug spending by reducing reimbursement fees for physicians. But ever since the Centers for Medicare and Medicaid Services unveiled its proposal two months ago, there has been a rising backlash from some lawmakers, physicians, patient groups and drug companies, which argue that the initiative will ultimately harm patients and raise costs (you can watch the hearing here).


Nonetheless, the proposal is “80 per cent likely to be adopted by CMS in July 2016 and implemented in fall 2016, despite rising industry and congressional pressure to delay or stop it,” wrote Evercore ISI analyst Terry Haines in an investor note on Tuesday.

CMS “has not backed off its timetable, although some small modification is not out of the question,” he concluded. “We think CMS is unlikely to significantly change its timetable because the agency wants to get (the first phase) in place in this presidential administration and CMS believes Congress will not be able to stop it.”


That first phase of what would become a five-year, national test involves altering the reimbursement formula for physicians. Physicians are supposed to be reimbursed the average sales price of a medicine plus another 6 percent, although budget sequestration changed that to 4.3 percent. CMS is proposing they be paid the average sales price, as well as 2.5 percent and a flat fee of $16.80.

As CMS views it, this would provide greater payments for lower-cost generic drugs. Moreover, the agency maintains its plan will be budget-neutral, which is a way of saying it will not cost the government any additional money. Later, CMS plans a second phase involving some of the same tools, such as pricing based on a drug’s approved indications, used by commercial health insurers to lower drug costs.

There is a long list of criticisms, though. For one, physicians say they will be “under water” if reimbursement costs are less than what they pay for the medicines. Others argue that Medicare costs will, in fact, actually rise if doctors send more patients to hospitals, where treatment costs are higher. For these reasons, among others, many people want CMS to withdraw its proposal altogether.

Much is at stake for drug makers, as well. “Stopping the Part B (proposal) is important to (the pharmaceutical industry) and not just for its own sake,” wrote Haines. The industry trade group “also wants to show that any attempt to change the current drug pricing regimes in Medicare, including Part D, will be met with fierce pushback and bipartisan congressional opposition.”

Indeed, 242 members of Congress two weeks ago sent a letter to the agency complaining that the first phase will “severely harm patient access to needed drugs,” especially seniors and those with rare diseases, because physicians will face Medicare reimbursements that do not cover their costs for purchasing medicines. A dozen Republican Senators sent their own letter recently, as well.

Avoiding political overtones, the Personalized Medicine Coalition, a group of drug makers, insurers, patient groups and other institutions, wrote to CMS that the “most innovative medicines, including advanced, personalized medicines targeted to smaller patient populations, (are) facing the deepest payment cuts … Payment policies that institute one-size-fits-all mechanisms for assessing value and determining coverage … may reverse advances for patients.”

A new analysis, meanwhile, by a team of health economists at Memorial Sloan Kettering Cancer Center disputes these contentions. They argue that physician concerns over finances will be determined more by pricing decisions made by drug makers and distributors. They also maintain there is no evidence to support the idea that small physician practices will be forced to consolidate or that more physicians will send patients to hospitals for treatment.

The proposal has its supporters, too. More than two dozen consumer groups, unions and insurers, including AARP and the Medicare Rights Center, wrote to CMS backing the proposal. And a dozen Democratic senators sent CMS a letter saying the CMS plan is right to emphasize medicines based on value and outcomes, rather than treatments that provide doctors with the largest financial incentives. However, they also asked for some modifications.

Of course, there could be tweaks, since even some Democrats want major changes.  “Proposed improvements include scaling down the proposed size of the (experiment), use of tiered reimbursement rates (by drug price, indication, and site of care), and exclusion of certain drugs and/or indications from participation in the model,” wrote Leerink analyst Geoffrey Porges in an investor note. At most, though, he expects a minor delay in starting the plan and only slight adjustments to the fees.

Clarification: This story was updated to note that the Personalized Medicine Coalition includes drug makers, health insurers, patient advocacy groups and other organizations.