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Legislative Updates

Obama administration announces proposal to lower Medicare Part B drug costs

On March 8, the Obama administration unveiled a proposal to reduce drug costs through the Centers for Medicare and Medicaid Services’ (CMS) Innovation Center. The experimental project—which could affect letter carriers because of its potential impact on the Federal Employees Health Benefits Program—would allow the government to vary reimbursements on drugs given in hospitals to test whether the existing payment model encourages physicians to prescribe more expensive medications that often are not the most effective. The proposal comes as affordable drugs have become a major issue in the presidential elections, with costs spiking 12.6 percent in 2014 alone.

The pricing experiment applies only to Medicare Part B, which pays for drugs administered to patients by care providers. The program’s spending has grown from $9.4 billion in 2005 to nearly $18.5 billion in 2015.

Medicare Part B currently reimburses the average sales price plus 6 percent for drugs covered under the program. The Medicare Payment Advisory Commission has criticized the payment model, suggesting the formula gives physicians incentives to prescribe more expensive drugs. Instead, the program would test prescribing patterns by lowering the add-on to 2.5 percent and substituting a flat payment of $16.80 per drug per day.

The CMS plans to implement the experimental payment policy in late 2016 in several geographic regions that will be announced later in the final rule.

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