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Changes Proposed to Slow Medicare Spending

Alarmed by the accelerating growth in Medicare spending for prescription drugs, the Medicare Payment Advisory Commission (MedPAC) recently called on Congress to take decisive action that could save the federal government billions of dollars.

Pointing out that Medicare’s outlays for Part D prescription coverage had risen nearly 60 percent between 2007 and 2014, the commission outlined proposed changes that it said could save at least $10 billion over five years.

Although Congress usually gives serious consideration to the agency’s recommendations, federal legislators are unlikely to act on these most recent proposals until sometime after the November elections.

MedPAC’s June Report

The commission, an independent congressional agency, made these recommendations in its June 2016 report to the Congress on Medicare and the health care delivery system. Under its congressional mandate, the commission is obligated to regularly review Medicare spending issues and make recommendations to Congress based on the findings from those evaluations.

Although the commission’s June 2016 report touches on a number of aspects of Medicare’s overall spending, the primary theme of this most recent report is spending for prescription drugs. Specifically, the commission points to its growing concerns about the rapid rise in prescription drug prices, “which can affect beneficiary access to needed medications, as well as the financial sustainability of the Medicare program.”

Prescription Drug Spending

The commission’s report tackles three key areas of its concerns related to Medicare’s prescription drug spending. Specifically, the report addresses:

1. Medicare drug spending in its broader context: Rather than purchase prescription drugs directly, the report explains, Medicare makes payments to drug plans, physicians, and health care facilities, which in turn negotiate drug prices with pharmaceutical manufacturers, either directly or indirectly. Under this arrangement, Medicare’s ability to influence drug prices is indirect. Other factors influencing the prices Medicare pays for drugs include patent law and the drug approval process of the Food and Drug Administration.


MedPAC urges Congress to enact its proposed changes to save billions of dollars in coming years.

2. Medicare Part B drug and oncology payment policy issues: Under Part B, Medicare covers drugs administered by injection or infusion in doctors’ offices and hospital outpatient departments. The commission report looks at two broad issues. The first is a review of possible changes in the way Medicare pays for drugs under Part B. The second is a consideration of approaches that could improve the quality of oncology care while at the same time restraining its costs. The commission notes that more than half of Medicare Part B drug spending goes for anticancer and related drugs.

3. Improving the Part D prescription drug program: The commission’s report also offers recommendations for strengthening the Part D prescription drug program. One such recommendation would give plan sponsors greater financial incentives to manage enrollees’ benefits along with more powerful tools with which to do so. Another proposal would prohibit plan sponsors from including manufacturers’ discounts in its computation of enrollees’ out-of-pocket spending. In this same area, the commission suggests, plans should give enrollees broader coverage by eliminating beneficiary cost-sharing above the catastrophic gap. These recommendations would also allow plans to encourage low-income beneficiaries to use generic drugs whenever those are available.

As summed up in an article posted at, MedPAC’s prescription drug-related recommendations would:

    • Slash or possibly eliminate the copayments that lower-income Medicare Part D beneficiaries now shell out for generic drugs — a move that would encourage more widespread use of these low-cost alternatives to high-priced brand-name drugs.
    • Establish a cap on out-of-pocket spending by higher-income beneficiaries that is similar to the one now in place for low-income Medicare enrollees. Once that spending cap is reached, Medicare would be required to pay 100 percent of prescription drug costs.
    • Make it more difficult for both low- and high-income beneficiaries to reach that spending gap by excluding manufacturers’ discounts from the calculation of an enrollee’s out-of-pocket spending.
    • Require insurers to pay 80 percent of drug costs, up from 15 percent, once beneficiaries have reached their out-of-pocket maximum.

Unified Payment System

The commission also reports on its progress toward the development of a unified payment system for post-acute care, signaling that a prospective payment system (PPS) for post-acute care is feasible and within reach. If accepted, this new payment system would replace the existing post-acute care payment systems that are currently used by Medicare. MedPAC says that its PPS prototype “accurately predicts resource needs for nearly all patient groups,” an indication that it could be used to set fair and accurate payments. The commission suggests that a comparable unified payment system could be designed and implemented based on currently available data and then refined once uniform patient assessment data is being collected.

MedPAC’s June report also suggests the use of competitive pricing to set beneficiary premiums in Medicare. Under current law, Medicare beneficiaries can choose to receive their Part A and B benefits through traditional fee-for-service Medicare or through a Medicare Advantage program. As things now stand, there is no strong incentive for beneficiaries to make this choice based on the model that provides the highest value in their market. The commission recommends that Medicare actively encourages beneficiaries to select the more efficient (high-quality, low-cost) model, which in turn would reinforce the incentives encouraging providers and plans to operate more efficiently. MedPAC’s report offers three possible designs for creating such incentives for beneficiaries.


Medicare’s spending for Part D prescription drug coverage rose nearly 60 percent between 2007 and 2014.

Emergency Care in Rural Areas

Another area of concern to MedPAC is the loss of access to emergency care in some rural areas. The commission cites as examples of this phenomenon the recent closures of some small rural hospitals. Under the current system, subsidy payments to these rural facilities are linked to their level of inpatient admissions, which are in rapid decline in some rural areas. To counter this disturbing trend, MedPAC suggests that offering certain rural hospitals the option to switch to an outpatient-only model might allow certain rural facilities to continue services. According to the commission, the objective of an outpatient-only option would be to promote efficiency and ensure continued access.

In its consideration of any future role that telemedicine might play in the delivery of Medicare services, the commission takes a somewhat cautious approach. Its report contains MedPAC’s analysis of telemedicine services, which the commission describes as “a multidimensional set of health care services delivered through a range of online, video, and telephone communication.” Until more is known about the cost and efficacy of such services, the commission suggests that “risk-based models such as Medicare Advantage, bundles, and accountable care organizations may be the most appropriate areas in which to begin expanding Medicare’s coverage. . . .”

If you’d like to read more about Medicare, health insurance, and other topics of interest to health consumers, check out our blog.

This post first appeared on Blog | Current Health News, please read the originial post: here

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Changes Proposed to Slow Medicare Spending


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