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This Is Uncomfortable

Slashing incentives to prescribe expensive drugs

Dan Gorenstein Mar 9, 2016
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Roxana Selagea, a Publix Supermarket pharmacy manager on August 7, 2007 in Miami, Florida. 
Joe Raedle/Getty Images

Currently doctors and hospitals get paid more money if they prescribe Medicare patients more expensive drugs.

It’s what’s called “misaligned incentives” and it’s helped drive Medicare Part B drug spending to almost double over the last decade to $18.5 billion dollars.

Yesterday federal health officials announced a proposed rule to realign those incentives, by encouraging doctors to prescribe more affordable – but equally effective meds.

Sounds reasonable, right?

But a slew of drug makers, cancer centers and patient groups are up in arms, claiming this is a heavy-handed tactic from Washington bureaucrats.

Right now, if an oncologist prescribes a Medicare patient a chemotherapy drug – they’ll get reimbursed, plus a 6% mark-up. 

“If there is a drug that costs $1000, the doctor gets $60. If the same drug costs $100 the doctor would only get $6,” Amitabh Chandra said, an economist at Harvard Kennedy School.

Under the proposed rule, that same doctor would still get that reimbursement, a 2.5 percent markup and a $17 flat fee.

Chandra said the whole idea is to root out lousy financial incentives most of us don’t see.

“We as a society have a tendency to assume that high cost drugs are exclusively the result of bio-pharma companies charging very high prices,” he said.

“What we fail to realize again and again is that physicians and hospitals also have extremely strong financial incentives to push high cost drugs.”

The proposal has certainly aligned hospitals, doctors and the pharmaceutical industry, all vowing to block the move.

“This would dramatically decrease the reimbursement on these drugs. It’s just not viable,” said Ted Okon, Executive Director of the Community Oncology Alliance.

This change, he warned, will force doctors to sell their practices to hospitals where care is more expensive, hitting cancer patients and their families hard.

“There was a landmark study that showed the government pays $6500 more when the care is delivered in the hospital setting,” he said.

Expect fierce fighting over the next 60 days until the public commenting period closes.

University of Chicago economist Rena Conti said this intense pushback is the messy work of healthcare reform.

“If we want to change the system to be more value-based that means fundamentally disrupting the revenue models of a lot of really big players in healthcare,” she said.

That, she admitted, is daunting – but worth the struggle.

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