The Trump administration has proposed sweeping changes to Medicare to curb taxpayer spending on prescription drugs. These include price setting, revamping how doctors and hospitals acquire drugs, and changing how physicians are reimbursed for medicines.
The changes apply to "Part B," the component of Medicare that covers medicines administered in a health-care facility, like gene therapies and advanced treatments for cancer. Today, physicians purchase these medications directly.
These changes may reduce short-term expenditures, but will restrict access to lifesaving medications.
The Trump administration's proposal, which is being pitched as a five-year experiment in half the country, has three key components.
First, it would set prices on Part B drugs. Rather than the current program, which sets Part B reimbursements on the average U.S. sales price of a drug, the government would index payments to a drug's average price in 16 foreign markets with socialized healthcare systems.
Second, it would revamp the process for acquiring medicines by injecting a middleman between physicians and manufacturers. These vendors would purchase Part B drugs from manufacturers, bill Medicare, and distribute them to doctors and hospitals. The administration believes middlemen will negotiate better discounts from manufacturers.
Finally, the proposal would alter the reimbursement formula for doctors. Rather than receiving a 4.3 percent markup, which is designed to cover handling, storage, and administration, doctors would receive a flat fee for each dose administered. Critics of the current formula suggest that doctors are incentivized to prescribe expensive drugs in order to maximize their payout.
The international pricing index makes little sense. Most of those 16 countries keep prices artificially low by restricting patients' access to care.
Nearly 90 percent of new treatments introduced worldwide between 2011 and 2017 were available to Americans. In Japan and Canada, fewer than 50 percent of new treatments were available; in Greece, only 14 percent were.
History suggests that inserting more middlemen into the drug pricing equation won't curb costs. The U.S. government tried this approach from 2006 to 2008, when Medicare contracted with vendors to buy Part B medications. The government did not save money, and the program was axed amid disputes over contracts and low participation.
What's more, a flat fee could force some doctors to close their doors. Eighty percent of oncologists already say that reimbursement cuts impact their ability to sustain their practices.
A clinically driven approach that ensures seniors have access to high-value medicines and eliminates the use of care that does not improve health could save billions and improve the health of seniors.
Take "value-based insurance design," or V-BID, a private-sector driven strategy with bipartisan political support. In V-BID programs, patient cost-sharing for certain highly effective drugs and procedures are eliminated or reduced to encourage their use -- even if those services that are initially expensive.
Slowing the growth of Medicare spending is imperative. Before we implement policies that deny seniors access to effective treatments, a focus on the identification and elimination of no-value care should be a priority.
Dr. A. Mark Fendrick is the director of the Center for Value-Based Insurance Design at the University of Michigan, where he is also a professor of internal medicine in the School of Medicine and a professor of health management and policy in the School of Public Health.