Medicare competitive bidding programme begins to take shape

Government document seeks comment on scheme for physician-administered drugs.

The strongest sign yet that the US government wants to get a grip on the costs of physician-administered drugs in Medicare has emerged in the form of a “request for information” on how to replace the buy-and-bill model with a competitive bidding programme.

A series of questions from the Centers for Medicare and Medicaid Services (CMS) suggests that the programme would at least initially be limited in scope, focusing on drug classes and indications that could be most amenable to squeezing out savings. The agency will have its work cut out for it – it has tried and failed to implement competitive bidding once before, and whether it can save significant taxpayer money by doing so is a serious question.

Just asking

President Donald Trump’s drug pricing blueprint released in May raised the possibility of competitive bidding for physician-administered drugs, which typically are complex biologicals that must be infused at a medical facility and reimbursed as part of the Medicare physician benefit, or “part B” of the programme.

Medicare now reimburses physicians based on average selling price (ASP) plus a 6% markup. This method, which has few brakes on spending growth, is blamed for skyrocketing costs – CMS says part B drug costs grew at a 9.8% annual rate between 2011 and 2016, reaching $28bn.

To combat these costs, the US government hopes to move some of these drugs into competition with self-administered drugs, the prices of which must be negotiated with a private payer (Vantage view – Competition not the answer to restraining Medicare drug costs, June 1, 2018).

But with more questions than answers posed in the blueprint, it was anybody’s guess as to whether CMS would move forward.

The CMS document released on Wednesday also asks numerous questions, but at least begins to fill in some of the details of the administration’s thinking.


As with the previous – and now withdrawn – competitive acquisition programme, Medicare is looking to contract with vendors who will then use their buying power to achieve lower prices than the current reimbursement scheme, which uses the average selling price as a benchmark and tacks on a 6% markup. The vendors would be authorised to build payments around expected outcomes or vary the rate based on the health benefit seen in different indications where certain drugs are used for multiple conditions.

Still to be determined is whether the vendors would buy and deliver the drugs to offices or whether they would only arrange for Medicare reimbursement to the drug companies and suppliers once beneficiaries were treated. The former method would likely require physicians to maintain a separate Medicare inventory in their own offices to track reimbursement, something the independent Medicare Payment Advisory Commission has pointed out

Another issue CMS is pondering is the fact that for many physicians the current reimbursement scheme represents a significant profit centre. Reforming reimbursement could lead to that revenue stream drying up and, to get doctors on board, Medicare might need to offset these losses; this would mean, of course, that programme savings could be much smaller than hoped.

A final key consideration is how to ensure that pharma companies participate. The CMS document suggests that the agency might prefer to provide incentives for participation, but the agency could make the scheme mandatory.

Mr Trump’s threat to impose competitive bidding broadly across Medicare is what caused pharma valuations to crash even before he took office. As the debate has matured, the administration’s drug pricing proposals have grown ever more modest. In the case of Medicare part B drugs, the history of trying to impose competitive bidding suggests that the process will be complex, and even if it is successfully completed the savings might be limited.

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