Medicare change: 'Perverse' incentive or 'perverse' reform?

A possible Medicare pilot program aimed at reducing the cost of care for some patients is a political hot potato.

Story highlights

  • A proposed pilot program may change the way doctors are reimbursed for using certain drugs
  • Under the current system critics say doctors have a "perverse" incentive to use the more expensive drug
  • Critics of the pilot program say it unfairly penalizes smaller doctors offices and rural facilities

(CNN)If you have cancer or Crohn's disease, does the doctor give you the best drug to fight that illness, or are you getting the drug that makes your doctor the most money?

That's what a proposed pilot program for Medicare is trying to figure out and it's become a political hot potato. Powerful voices on either side of the debate describe the current system and the possible change as "perverse."
    The United States spends more on health care than any other financially similar country in the world and yet we are still sicker than these other countries. While we spend about 17.1% of our GDP on health care and we don't live as long, we have a higher rate of chronic disease and more American babies die than in these other countries.
    A large part of what makes our health care so expensive is the high cost of prescription drugs. Americans pay more for in-patent prescription drugs than all other countries studied, research from 2013 found. In part, that might be because American doctors are prescribing new drugs and more expensive drugs compared to their foreign counterparts.
    While the market largely regulates what we pay for drugs, the Obama administration has proposed a new experiment it hopes will drive down some of the costs.
    The experiment involves a five-year pilot program that would change the way doctors are reimbursed for prescribing certain drugs under Medicare Part B. The program would test to see if doctors would chose less expensive drugs to treat cancer patients and other patients who need injectables. That includes people who need treatment for macular degeneration, rheumatoid arthritis and Crohn's disease. These patients and their drugs account for a large percentage of the cost of Medicare Part B. If the administration could reduce the amount spent on these drugs, it could save taxpayers a significant amount of money.
    The way the current law works, doctors can be reimbursed the current sales price of a drug, plus 6%. The actual rate paid now is a little lower, at 4.3%. In either case, if a drug is more expensive, the doctor is reimbursed more. If doctors use a $13,000 drug, as a opposed to a $3,000 drug, they will be reimbursed more. In a conference call with reporters in March, Dr. Patrick Conway, the Centers for Medicare and Medicaid Services chief medical officer, called the current system a "perverse incentive structure" that "doesn't benefit patients or the system."
    The pilot program would test the theory that doctors or outpatient clinics might prescribe more of these expensive drugs, not because they are better treatments, but because the doctor makes more money.
    The pilot program would change the reimbursement formula to a flat fee for each day any drug is used, plus 2.5%. For comparison another group of doctors would be reimbursed using the current formula. If the group paid the flat rate costs the system less without reducing the quality of care, Medicare could switch over to that formula.
    Groups such as AARP and the Medicare Rights Center support the pilot program. AARP said the current amount Medicare Part B spent on prescription drugs, which is double the amount spent in 2007, is "simply unsustainable." It argued "we cannot continue to ask taxpayers and Medicare beneficiaries to pay for exorbitantly priced prescription drugs without any consideration of whether their money is being well-spent."
    Some studies have shown that when the current reimbursement system was enacted in 2003, doctors started to choose the more expensive drugs. A 2010 study showed oncologists treated patients with lung cancer started using more expensive drugs when Medicare switched to the current reimbursement formula. Another report from the Office of the Inspector General found similar results with doctors choosing more expensive drugs to treat prostate cancer.
    Some high profile doctors groups and their professional associations, along with the associations for the pharmaceutical industry, oppose changing the current reimbursement formula. The associations don't even want Medicare to try this pilot program.
    The Community Oncology Alliance sent a letter to the Obama administration arguing the pilot program is "an inappropriate, potentially dangerous, and perverse experiment on the cancer care of seniors who are covered by Medicare." Doctors pick drugs for their patients based on what works best, rather than on what makes them the most money, the organization argues. A study looking at cancer death rates between 1995-2007 found that fewer Americans died and the number of deaths declined faster than in other countries, when cancer care spending rose the most, suggesting in general that more spending did seem to make a difference.
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    Critics of the pilot program argue that smaller medical offices and outpatient clinics will suffer, in part, because they won't be able to negotiate better drug prices in the same way as larger facilities. That means those providers would not be able to offer patients the more expensive medicines. Rural health care providers may also suffer. Other studies have suggested a change in incentives wouldn't make a difference in the high cost of drugs.
    The American College of Rheumatology is currently reviewing the proposed program, and wrote that Medicare reimbursement rates are already too low. Many of their doctors have "already been forced to stop providing in-office treatments under the current Medicare reimbursement rate because it does not cover the cost of administering these highly complex therapies," it wrote in a press release.
    The public comment period about this pilot program goes until May 9. Centers for Medicare and Medicaid Services will then decide if it should go ahead with the program. If it does, the experiment could start as early as this fall.