Medicare’s Drug Price Negotiations Could Impact Physician Reimbursement

Physicians inside and outside of Medicare could lose at least $25 billion in add-on payments for Part B drugs that could be part of the Inflation Reduction Act’s program to negotiate drugs, according to an analysis conducted by Avalere. This analysis, which was funded by the Community Oncology Alliance (COA), found that the physicians most likely to be impacted are oncologists.

Milena Sullivan

“Any provider who administers any of the oncology or hematology products on the list may see some of the largest decreases,” Milena Sullivan, a managing director with a background in oncology policy and market access at Avalere, said in an interview. “Oncology presently is not a therapeutic area that is very heavily rebated and very heavily discounted. It’s a sensitive therapeutic area. Payers and Medicare try to give access to beneficiaries to almost all available therapies."

Avalere analyzed the projected changes to provider reimbursements for a set of physician-administered drugs that could be negotiated by CMS when Part B products are included in the program.

The analysis assessed 10 physician-administered therapies based on Avalere's expectations for the products that could be chosen for negotiation for the years 2028 to 2032, based on Medicare spending. The products fall into four therapeutic categories: oncology/hematology (four products), immunology (three products), respiratory (one product), and neurology (two products).

Avalere analysts created a four-year model to account for the lag time between drug negotiations and how new prices would impact average sales price (ASP), Sullivan said.

Related: Questions Remain about Whether Negotiated Drug Prices will Save Money

In August 2024, CMS released the prices for the first 10 drugs that have been negotiated for Medicare Part D. The new prices will go into effect beginning Jan. 1, 2026. CMS will select for negotiation up to 15 more drugs covered under Part D for 2027, up to 15 more drugs for 2028 (including drugs covered under Part B and Part D), and up to 20 more drugs for each year after that.

“How the Maximum Fair Prices are effectuated in the market will ultimately determine the administrative and financial burden for various players in the supply chain, but CMS has left a lot of uncertainty,” Sullivan said. “The agency will finalize the effectuation details for Part D drugs later this year and quickly turn to Part B considerations in early 2025. Stakeholders have a window of opportunity to influence CMS’ decisions for complex physician-administered therapies.”

Payer contracts are tied to average sales price as a metric for Medicare Part B drugs and biologics, using ASP plus 6%. This, however, is currently adjusted down by sequestration, which is mandatory reduction required in the Medicare fee-for-service program because of the Budget Control Act of 2011. The additional reimbursement is intended to cover medication storage, shipping, inventory management, and other factors associated with many physician-administered products.

Avalere’s model shows the average decrease in ASP across the 10 Part B drugs through the end of 2032 if MFP discounts are reflected in ASP calculations. The analysis finds a minimum loss of add-on payments of $25 billion for providers across Medicare and the commercial market between 2028 and 2032.

Ted Okon

Based on this analysis, oncologists could face more than $12 billion reimbursement loss through 2032. “A financial hit of this magnitude to cancer practices’ reimbursement is staggering and may well limit practices' ability to offer life-saving treatments to patients with cancer, regardless of their coverage types.” Ted Okon, executive director of COA, said in a news release.

For the three oncology/hematology products selected for this analysis, providers are projected to face a 39% to 64% decrease in Medicare fee-for-service add-on payment, along with a 13% to 21% reduction in commercial and Medicare Advantage add-on payment. Across both markets, this amounts to a $12 billion to $19 billion projected reduction in add-on payments to providers from 2028 to 2032.

“The IRA left a little bit of ambiguity in the language about whether or not the Maximum Fair Prices and the respective discounts that manufacturers will be automatically reflected in average sales price calculations,” Sullivan said. “It's Avalere’s interpretation at this stage maximum fair prices will in fact be reflected in average sales price calculations.”

The reason that matters, she said, is because this could evidentially erode the reimbursement for physicians outside of Medicare. On the commercial side, providers are often reimbursed at ASP plus 10%. If the ASP over time is reduced because of Medicare’s Maximum Fair Prices, this will eventually lower physician reimbursement as whole for both those in Medicare and outside of Medicare.

“Reimbursement outside of Medicare also depends on how the contracts are written. But for the most part, we expect that that would be a very big risk,” Sullivan said. “In the current IRA language, Congress puts the onus on physicians to serve as intermediaries in how negotiated prices are operationalized in the complex Part B drug supply chain. This, in turn, may create volatility, especially for small or rural practices, and elicit pressures on prescribing incentives, referral patterns, and access to care.”

When the Inflation Reduction Act’s drug price negotiation was being discussed, “Congress debated how to operationalize the MFP [Maximum Fair Price],” she said. “They assume that the easiest way to do so is to put the onus on the provider to reconcile with manufacturers.”

The unintended consequence of this, she said, is that physicians may not be able to shoulder the administrative and financial burden of this.

Last year, Senator John Barrasso (R.-Wyo.) introduced a bill called Protecting Patient Access to Cancer and Complex Therapies Act, aims to address this. The bill would require drug manufacturers to send rebates directly to the CMS and take providers of the middle of the administrative side of this. “This bill will keep physician reimbursements stable and not cost the government a dime. Congress must pass this bill so cancer patients don’t become collateral damage as a result of the Democrats’ reckless tax and spending spree,” Barrasso said at the time in a news release.