MedPAC organized their discussion into three sections:

Granting the Department of Health and Human Services (HHS) authority to apply the Least Costly Alternative (LCA) policy to Part B Drugs.
Authorizing use of the dynamic pricing policy.
Aligning Medicare payment policy with evidence-based decisions through cost sharing for low-value therapies.

Medicare applied LCA to Part B drugs between 1995 and 2010. For select drugs treating the same condition and considered clinically similar, the policy set the payment rate based on the least costly drug. CMS covered each drug with unique Healthcare Common Procedural Coding System (HCPCS) codes, but set payment rates at the same rate. In 2008, a beneficiary challenged use of the policy for a Part B inhalation drug, arguing that the drug should be paid based on its own ASP + 6 percent. Federal courts ruled in favor of the beneficiary arguing that CMS never had authority for LCA drug policies and that all such policies are rescinded.

Also in 2008, when LCA was still in effect, the Congressional Budget Office (CBO) scored the expansion of LCA to include viscosupplements and identified a total of $490 million in savings between 2010 and 2019. Additionally, OIG issued an LCA and Part B drug report in Nov. 2012 that looked at Medicare payment data from Q3 2010 through Q2 2011 for “clinically comparable” luteinizing hormone-releasing hormone (LHRH) agonists used to treat prostate cancer. They found that if the LCA policy was still intact, Medicare could have saved $33.3 million over one year. MedPAC conducted a similar analysis and estimated that beneficiaries/taxpayers could have saved about $122 million if an LCA policy for at least one Part B drug class existed between April 2010 and December 2012.

MedPAC also discussed Pearson and Bach’s dynamic pricing policy (a reimbursement rate policy that does not affect drug pricing), and under this model, a new service’s payment rates would be linked to evidence on comparative effectiveness. The policy assigns new services to one of three categories based on availability of comparative clinical effectiveness evidence: 1) evidence of improved outcomes compared with alternative, 2) evidence of similar outcomes compared with alternatives, and 3) insufficient evidence to assess comparative effectiveness.

MedPAC’s discussion around LCA and dynamic pricing confirms continued CMS and Congressional interest in developing alternative payment models for Part B drugs. To date, the policies have been very “political” and the fact that MedPAC is discussing them again (and potentially in their June, 2014 report) shows just how important reducing Part B drug spending is. However, because CMS would need an act of Congress to use LCA for drugs, and due to substantial political sensitivities, any LCA policy reinstatements are unlikely in the near future. In the meantime, stakeholders will continue to explore other alternatives for Medicare Part B drug payments, including bundled payments and global payments, pay-for-performance and pathway programs.

View the 2008 CBO report.

View the 2012 OIG report.

View Pearson and Bach’s dynamic pricing policy.