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New Part B Drug Payment Model Proposed

    Client Alerts
  • May 02, 2016

On March 11, 2016, CMS proposed implementation of a new two-phase model for drugs reimbursed under Part B of the Medicare Program (“the Proposed Model”).  Drugs reimbursed under Part B include drugs administered in hospital outpatient departments or in physician offices.  The purpose of the Proposed Model is to test alternative drug payment designs with the goal of (i) reducing overall costs to the Medicare program, and (ii) enhancing quality of care.

During the first phase of the Proposed Model, some providers (“the control group”) would continue to be compensated under the current payment methodology for Part B-covered drugs (in most cases, Averages Sales Price (“ASP”) plus 6%).  The rest of the providers billing for Part B-covered drugs would be paid ASP plus 2.5% plus a flat fee per administration.   CMS proposes the initial flat fee will be $16.80 per administration, subject to annual adjustment.   CMS reports that this phase of the Proposed Model is intended to be revenue-neutral to CMS but recognizes that the new methodology will NOT be revenue neutral for all sites that administer Part B drugs.   Due to the average costs of infused or injected drugs at the sites, hospitals, ophthalmologists, rheumatologists, neurologists, gastroenterologists, and immunologists are predicted to suffer the greatest percentage decrease in Medicare reimbursement if included in the new reimbursement model for Part B drugs (ASP plus 2.5% plus a flat fee per administration).

The second phase of the Proposed Model includes implementing value-based pricing strategies for the drugs and implementing a clinical decision support tool for the prescribing physicians.  CMS expects implementation of the second phase of the Proposed Model to result in cost savings for CMS.  Following implementation of the second phase, entities that provide Part B drugs will be divided into four groups:  (i) providers in control group (no changes from existing payment structure), (ii) providers compensated pursuant to the adjusted payment methodology (ASP + 2.5% + flat fee), (iii) providers included in the value-based pricing strategies, and (iv) providers compensated pursuant to the adjustment payment methodology and included in value-based pricing strategies.

The proposed rule does not impact reimbursement for drugs provided to inpatients (generally covered under Medicare Part A) or for drugs provided outside of a healthcare entity to a patient pursuant to a prescription (generally covered under Medicare Part D).  In addition, CMS has excluded vaccines, drugs infused with a covered item of DME, end-stage renal disease drugs, and blood and blood products from the Proposed Model.  The Proposed Model does not propose to alter the methodology for reimbursing providers for the administration of the drug to a patient (for instance the injection or infusion).

Although providers can submit comments in response to any proposal within the Proposed Model, CMS is seeking comments on a number of specific questions related to the Proposed Model, including:

  • Potential effect of the Proposed Model on rural practices and small physician practice (less than 10 eligible professionals); and
  • Whether an alternative tiered approach to calculating the percent and flat fee should be considered.

Comments are due to CMS on May 5, 2016.   The entirety of the Proposed Model, including instructions for submitting comments, can be found here.

If you have questions regarding the Proposed Model, or would like to speak with one of our attorneys regarding Part B Drug Payments, please contact Joy Hord at