Oncology Practices May Be Hurt by Medicare Drug Price Negotiations

The U.S. Department of Health and Human Services (HHS) is set to negotiate with drug manufacturers over the maximum prices that Medicare will pay for certain treatments. Those new prices will become effective starting in 2026. A new commentary published today in JAMA Oncology argues that these negotiations, combined with the current Medicare reimbursement model, could have dire consequences for the financial health of community oncology practices.

“For better or for worse, the business model that has been built around oncology care delivery is tied to these drug prices,” Samyukta Mullangi, MD, MBA, lead author of the viewpoint and a medical oncologist with Tennessee Oncology in Dickson, told OBR. “A one-time reduction to the extent that was described in [recent analyses] would be devastating to community practices,” she added.

The Inflation Reduction Act of 2022 gives HHS the authority to negotiate drug prices, starting with oral Medicare Part D drugs and then intravenous part B therapies. At this time, ibrutinib (Imbruvica) is the only cancer drug among the 10 treatments that have been selected for price negotiation to date.

Under the new negotiation plan, the Centers for Medicare and Medicaid Services (CMS) would move the drug from its current reimbursement model, which uses the drug’s average sales price (ASP) plus 6%, to a model that uses a negotiated “maximum fair price” plus 6%. An analysis by Avalere Health estimated that the add-on payment value would drop by a minimum of 47.2%. Another study published in the Journal of Managed Care and Specialty Pharmacy calculated that cancer drugs selected for price negotiation would experience a minimum cut of 25%. Although this would generate savings for CMS, it could be disastrous for community practices whose business models are built around the current standard of ASP plus 6%.

“That’s a pretty hefty cut for anybody. You start losing 25% of your book of business, you have problems – and it could be bigger – so I don’t think you can be dismissive of their concerns,” said Douglas Holtz-Eakin, PhD, an economist and the president of the American Action Forum, a Washington, D.C.–based think tank.

Dr. Mullangi noted these types of cuts would hit community practices harder than they would hit larger cancer centers and may force them to make tough decisions, including which patients they can treat. For example, if commonly used drugs are selected for negotiations, she said that practices are “potentially going to be underwater on a variety of medications that you might otherwise deliver.”

Both Dr. Mullangi and Dr. Holtz-Eakin agree that one way to help community oncology practices weather the storm of price negotiation is to remove their dependence on the ASP-plus-6% model in exchange for an approach that separates the price of the drug from the reimbursement of healthcare delivery.

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