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Advising the Congress on Medicare issues
MedPAC > Recommendations > Medicare Part B drug payment policy issues

Medicare Part B drug payment policy issues

June 15, 2017

The Congress should change Medicare’s payment for Part B drugs and biologicals (products) as follows:

  1. Modify the average sales price (ASP) system in 2018 to:
    • require all manufacturers of products paid under Part B to submit ASP data and impose penalties for failure to report.
    • reduce wholesale acquisition cost (WAC)-based payment to WAC plus 3 percent.
    • require manufacturers to pay Medicare a rebate when the ASP for their product exceeds an inflation benchmark and tie beneficiary cost sharing and the ASP add-on to the inflation-adjusted ASP.
    • require the Secretary to use a common billing code to pay for a reference biologic and its biosimilars.
  2. No later than 2022, create and phase in a voluntary Drug Value Program (DVP) that must have the following elements:
    • Medicare contracts with a small number of private vendors to negotiate prices for Part B products.
    • Providers purchase all DVP products at the price negotiated by their selected DVP vendor.
    • Medicare pays providers the DVP-negotiated price and pays vendors an administrative fee, with opportunities for shared savings.
    • Beneficiaries pay lower cost sharing.
    • Medicare payments under the DVP cannot exceed 100 percent of ASP.
    • Vendors use tools including a formulary and, for products meeting selected criteria, binding arbitration.
  3. Upon implementation of the DVP or no later than 2022, reduce the ASP add-on under the ASP system.

Topics: Drugs, Devices, and Tests.