Medicare Part B Payment Demonstration


Medicare Part B Payment Demonstration Model

On March 8, 2016, the Centers for Medicare and Medicaid Services (CMS) released a proposed rule on a five year mandatory Medicare Part B Drug Payment Model testing whether alternative drug payment approaches lead to a reduction in Medicare expenditures, while preserving or enhancing the quality of care provided to Medicare beneficiaries. The model is proposed in two phases.

Phase 1 changes Medicare Part B drug reimbursement from Average Sales Price (ASP) + 6% to ASP + 2.5% plus a flat fee for the study arm. Phase 2 would implement value based purchasing (VBP) tools similar to those employed by commercial health plans, pharmacy benefit managers, hospitals, and other entities that manage health benefits and drug utilization.

Phase 1 – ASP+X (No earlier than 60 days after display of final rule, Fall 2016) Phase 2 – VBP (no earlier than January 2017)
ASP+6% (control) – 50% of PCSAs ASP+6% (control) – 25% of PCSAs
ASP+6% with VBP Tools – 25% of PCSAs
ASP+2.5% and Flat Fee Drug Payment – 50% of PCSAs ASP+2.5% and Flat Fee Drug Payment – 25% of PCSAs
ASP+2.5% + Flat Fee Drug Payment with VBP Tools – 25% of PCSAs

Note: Primary Care Service Areas (which are clusters of ZIP codes that reflect primary care service delivery) would be randomly assigned to each model test arm and the control group. The assigned PCSAs would not include ZIP codes in the state of Maryland where hospital outpatient departments operate under an all-payer model.

ADVI Angle

Without ASP + 6% reimbursement for Medicare Part B drugs, physicians may be unable to continue buy and bill model which may result in the acceleration of provider consolidation and/or shift to specialty pharmacy management. Further, the role of sequestration is particularly important to consider.  CMS recognizes that sequestration requires the reduction of Medicare payments by two percent for FFS claims.  CMS notes that this proposed rule does not consider reductions applied to Medicare payment under sequestration, such a cut is independent of Medicare payment policy.  Based on how sequestration will be applied the actual reimbursement would be ASP+ 0.86% plus a reduced flat fee.

CMS solicited comments regarding construction of and approaches to value-based payment designs; the Competitive Acquisition Program (a reboot); and episode-based or bundled payment designs.  ADVI has experience in all three having represented the only CAP vendor, various practices, cancer hospitals, payers and pharmaceutical companies in the design of value-based or bundled payment models. ADVI can work with PhRMA and biotechnology companies to model construction of value based payment arrangements as well as think through implications for Medicare Advantage and commercial payers.

Specific areas of ADVI offerings include:

  • Approaches to define rebates
  • How these arrangements could be created
  • Mechanisms to calculate and distribute rebate amounts
  • Amount of transparency in any arrangement
  • How the rebates should be accounted for in manufacturers’ ASP reports
  • Other applicable pricing information reported to CMS (such as for Medicaid purposes)
  • How CMS might monitor the prices paid by suppliers and providers for Part B drugs

Further, ADVI can assist in future rulemaking by CMS related to an episode-based or bundled pricing approach for Part B drugs in both physician offices and hospital outpatient settings. The intent is to explore an initial framework that could promote greater incentives for improved patient outcomes and financial accountability for episodes of care surrounding particular courses of treatment using particular Part B drugs. CMS is pursuing bundled and episode payments through models such as the BPCI initiatives, the OCM, and CJR.

Below are additional highlights of the proposed rule.


CMS proposes a five year demonstration with Phase 1 starting as early as Fall 2016 and Phase 2 starting as early as January 1, 2017. However, CMS believes that it may take several years to fulling implement Phase 2 and aims to have Phase 1 and Phase 2 in full operation during the last three years of the demonstration.


Phase I would compare Part B drug payment at ASP + 2.5% + a flat fee to the ASP + 6%. The flat fee will be determined in the final rule to establish budget neutrality across Part B drug payment. For the first year of the demo, CMS estimates that the fee would be $16.80 based on their analysis. The fee would be updated Jan 1, 2017, and in subsequent years based on the CPI. The flat fee would be billed using a CMS-established G-code.

Phase 2 would compare the control (ASP + 6%) to 1) ASP + 2.5% + flat fee, 2) VBP methods, and 3) both. In terms of Value Based Pricing (VBP) methods CMS is proposing to pursue:

  • Reference pricing (akin to least costly alternative)
  • Indications-based pricing (IBP)
  • Outcomes based contracting
  • Reduced patient cost-sharing for “high value therapies”

CMS sought comments on the potential groups of Part B drugs most suitable for each of the proposed approaches to value-based pricing and comment on any additional types of value-based pricing that could be considered for future rulemaking.


CMS proposed to develop and release a two component CDS tool that consists of an online tool that supports clinical decisions through education and provides feedback based on drug utilization in Medicare claims. The tool would be developed by CMS with support from the VBP contractor and would be available to physicians in the VBP arms of the model. Physicians participating in the model would voluntarily access the education tool, meaning that they would have a choice about whether to use the tool and how they would apply information from the tool to their practice.

CMS stated that it intends for the CDS tool to encompass specific drugs, groups of similar drugs, or diagnoses that are typically encountered in Part B. The tool would be available online and readily available to participants in the VBP arm of the model and would provide pertinent up-to-date information on drug therapies and treatments for a specific condition. The tool would provide information such as links to evidence-based guidelines for appropriate drug use and updated information on drug safety.


CMS acknowledged that there may be circumstances where a Medicare beneficiary whose Part B drug therapy is paid under the Part B Drug Payment Model may also be assigned to or otherwise accounted for in other payment models being tested by the Innovation Center. CMS notes that there is a potential for overlap between the Part B Drug Payment Model and the Medicare Shared Savings Program, the IVIG Demonstration, Innovation Center shared savings models, and other Innovation Center payment models, such as the Oncology Care Model (OCM) and the Bundled Payments for Care Improvement (BPCI) initiative and CMS has no intentions of excluding providers or payments in other CMMI initiatives from the Part B Drug Payment Model, with the potential exception of OCM.


CMS recognizes the overlap between the Part B Drug Payment Model presented in this proposed rule and OCM in that both models will affect providers’ and suppliers’ incentives for the use of oncology drugs, but in different ways. Oncology drugs represent a significant portion of Part B claims and include many high cost drugs. Drug claims under the OCM are paid under the ASP methodology and costs associated with therapy (including drugs) are evaluated periodically.

In the proposed rule, CMS stated its plans to proceed with both models, and CMS proposed to include OCM practices in all arms of the Part B Drug Payment Model, further stating it would not alter the sampling plan to exclude practices choosing to participate in OCM or practices that they might identify as the comparison group for OCM. However, we believe that CMS will ultimately exclude Oncology Care Model Practices from the Part B Drug Payment Model.


Proposed Drugs Paid under Part B to be Included in the Model

With limited exceptions, CMS proposes to include all Part B drugs in the model. Specifically:

Drugs and biologicals (including biosimilars) with HCPCS codes that are nationally priced, including ASP and WAC-based payment amounts, and drugs (and biologicals) paid separately under OPPS. Because OPPS pass-through drugs are paid ASP+6 percent, which is the same payment as separately paid drugs under the OPPS, CMS proposes including all OPPS pass-through drugs in the model. In Phase I, for drugs paid based on ASP and WAC, the 6 percent add-on will be replaced with the updated add-on amount.

In Phase I, for HCPCS codes with AMP-based payments, the lower of the quarter’s AMP-based payment amount (that is, the AMP-based amount on the quarterly ASP files) or the model payment amount would be used; in other words, if the model-based payment is lower than the AMP-substitution-based payment, the model-based payment amount will be used.

Non-infused drugs furnished by DME suppliers (including the limited number of Part B drugs dispensed by pharmacies), such as immune-suppressives, oral chemotherapy, oral anti-emetics, inhalation drugs used with DME, and clotting factors. Payment for these drugs is typically based on the ASP, but additional fees are also paid by Medicare for dispensing, supplying, or furnishing some of these drugs. CMS believes it is important for the model to include drugs that are used outside of the incident-to setting. CMS also believes it is important to understand the impact of other payment-related financial incentives that are associated with the drug payment, thus the agency proposes that phase II of this model may incorporate changes to the furnishing, supplying and dispensing fees that are associated with these drugs.

Note: This subset of drugs that are furnished by DME suppliers does not include drugs that are infused with covered DME.

Intravenously and subcutaneously administered immunoglobulin G (IgG). This includes products administered in the office as well as intravenous products administered in the home to patients with primary immunodeficiency. Payment for intravenously administered IgG used in these situations is typically based on the ASP, while payment for subcutaneously infused IgG will depend on who furnishes the drug.

For example, physicians would typically be paid an ASP-based amount while DME suppliers would be paid an amount based on the AWP.

CMS does not believe that all Part B drugs are appropriate candidates for inclusion in this phase of the model, and proposes to exclude the following categories of drugs.

Contractor-priced drugs. Including drugs that do not appear on the quarterly national ASP price file. Because pricing for contractor-priced drugs may vary, CMS is limiting the model to drugs that are nationally priced by CMS.

Influenza, pneumococcal pneumonia and hepatitis B vaccines. CMS considers these items to be preventive services, and preventive services, such as these vaccines, are typically provided at no cost to beneficiaries. CMS proposes to exclude vaccines that are preventive services from this model.

Drugs infused with a covered item of DME in Phase 1. CMS proposes to exclude this category of drugs from Phase I of the model so that DME policy can focus on issues related to DME and so that the model does not interfere with decisions related to the inclusion or exclusion of these drugs in DME competitive bidding. CMS does not propose to exclude DME infusion drugs from the entire model, just Phase I.

ESRD drugs. Many ESRD drugs are bundled with services, and relatively few drugs are still paid separately. Given adoption of bundled payments for renal dialysis services and the diminishing number of drugs that are paid separately in this setting.

Blood and blood products.


CMS is also concerned about how to treat drugs that are in short supply. Due to access concerns related to drug shortages, under current Part B drug payment, CMS excludes drugs that are in short supply from AMP-based price substitution and always uses the ASP+6% payment amount. To maintain access to drugs that are in short supply, CMS believes that incorporating a safeguard is prudent.

For drugs that are included in the model and are reported by the FDA to be in short supply at the time that model payment amounts are finalized for the next quarter, CMS proposes to continue paying for these drugs using existing statutory methodology.