The latest MedPAC Part B spending data show a surprising increase in Medicare buy-and-bill spending for provider-administered drugs. (See chart below.) After a post-2005 slowdown, spending growth accelerated from 2009 through 2012.
Do these data of prove buy-and-bill’s resilience, or are they a pre-sequestration fluke driven by new therapies and a growing Medicare population? My speculations are below. If you feel brave, make a yummy sound with a comment of your own.
WALK THIS WAY
Medicare is the largest payer of provider-administered specialty drugs, and therefore a key player in the buy-and-bill system. For buy-and-bill background (BBB), see Chapter 3 (starting on page 36) and Chapter 6 (starting on page 98) in our just-released 2014-15 Economic Report on Pharmaceutical Wholesalers and Specialty Distributors.
Medicare’s Part B program covers provider-administered injectable drugs and certain other medications. The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) mandates that Medicare use a drug’s Average Sales Price (ASP) for reimbursing provider-administered injectable drugs. ASP is based upon the manufacturer’s actual selling price, i.e., a drug’s list price minus all price concessions. As of 2005, Medicare Part B switched from an Average Wholesale Price (AWP) base to Average Sales Price (ASP).
As the chart below shows, Medicare’s switch to ASP initially slowed the growth of Medicare Part B spending on outpatient drugs. After the 2005 change, total spending on provider-administered drugs declined by $800 million (-7.3%) compared with 2004 spending. Spending increased at a compound average growth rate (CAGR) of only 1.9% from 2005 through 2009, compared with an average annual growth rate of 21.4% from 1997 through 2004.
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But since 2009, spending has trended upwards. Based on the newly-released data, the CAGR was 5.3% from 2009 through 2012. While that’s much lower than the pre-2005 era, it’s almost three times as fast as the early ASP days.
COULD BE WORSE
Many new specialty drugs are provider-administered, which should increase Part B spending. Here are some countervailing forces that could slow Part B growth:
- The MedPAC data do not extend far enough to include the federal government’s 2013 sequestration budget cuts, which reduced Medicare drug payments to providers, from ASP+6% to ASP+4.3%. See Sequestration Mania Hits Physician-Administered Drugs. So far, Congress not responded to the industry’s request to put... the candle... back.
- Health systems are acquiring oncology practices and shifting care to hospital outpatient departments. Over time, this site-of-care shift will reduce Part B spending. In its report, MedPAC notes that Medicare drug spending in HOPD grew from $3.5 billion in 2009 to $6.0 billion in 2012 (+ 71%). Part B spending grew more slowly, from $11.3 billion in 2009 to $13.2 billion in 2012 (+17%).
- Our old friend 340B may be accelerating the site-of-care shift to hospital outpatient departments. See Unsweet Charity: 340B Abuses When Hospitals Buy Oncology Practices for more on this sweet mystery of life.
- Hospitals can generate more Medicare revenue from drug administration. In a March report, MedPAC recommended that Medicare align payment rates for certain outpatient hospital services with rates the paid in physician offices. In the meantime, HOPD spending may continue to grow more quickly than Part B.
P.S. The Young Frankenstein: 40th Anniversary blu-ray was released on September 9, 2014!
40 years?!? Wow, I'm old.