When President Biden signed the Inflation Reduction Act into law, he promised it would be the solution to lowering healthcare costs, including prescription drug prices. One of the law’s key provisions allows the government to impose price caps on Medicare Part B and D drugs. These caps have a ceiling, but no floor. The first 10 drugs selected for Part D price controls were announced earlier this year, with the new prices hitting the market in 2026. Drugs covered under Part B will be eligible for price controls in 2028.
Democrats hailed this “negotiation” process as a win for patients. But, for many specialists, including oncologists, who rely on Medicare Part B to cover high-cost, life-saving treatment alarm bells rang. They understood what lawmakers tucked away in their Capitol Hill offices couldn’t – patient care will suffer under these government price controls.
Medicare Part B covers outpatient drugs administered in a clinical setting, including many cancer therapies. Oncologists are reimbursed based on the Average Sales Price (ASP) of the drugs they use to treat patients, plus an additional percentage to cover administrative costs. The add-on to ASP also reflects that not all practices can buy a drug at preferred rates. Smaller practices buy at or above the average, so the percentage add-on was intended to provide some cushion and to keep small, community-based practices in the market to improve access, particularly in underserved areas. Currently, the add-on is 6% minus a 2% across-the-board cut, working out to 4.2% on top of each reimbursement. The IRA will keep the current 6% reimbursement rate, but it will be based on the “negotiated” price, not the ASP. The government-set price is expected to be significantly less, leading to a reduction in reimbursement for oncologists and their clinics.
While the exact amount of how much will be lost is yet to be determined, a recent study by Avalere analyzed how the IRA would change the oncology space and the numbers are staggering. The analysis projected up to $19 billion in losses or a 64% decrease in Medicare add-on payments and a 13%-21% reduction in commercial and Medicare Advantage (MA) add-on payments for providers who administer the oncology/hematology drugs shortlisted for Part B price-setting.
While providers will see lower reimbursement rates, they’ll also be dealing with higher operational costs. The administrative burden and costs associated with tracking the annual government-set prices and managing changes to the reimbursement structures will divert necessary resources away from patients. While oncology practices associated with large hospital systems may be better suited to absorb these additional costs, smaller practices – especially those in rural and underserved communities – will struggle and may be forced to close, creating care deserts for patients. This will exacerbate the existing health disparities for low-income and communities of color.
The IRA’s impact isn’t just being felt in the doctor’s office, but also in the lab. Government price-setting is forcing companies to rethink what kind of therapies they invest in and how much. The Congressional Budget Office (CBO) has estimated the number of new treatments would decrease by about one over the 2022-2031 period, four more over the next decade, and about five in the following decade. The University of Chicago estimated price controls will lead to as many as 342 fewer new drugs. Fewer drugs mean more competition for access, longer lead times, alternative treatments with unknown or less successful outcomes, and an increase in drug shortages.
Additionally, the IRA’s price controls could also result in certain cancer drugs being restricted or subject to additional prior authorization requirements, further complicating the physician’s role in creating a treatment plan.
The combination of increased physician burdens and reimbursement cuts is causing a massive shift from physician-office care to hospitals. Before the implementation of the ASP system, more than 70% of Medicare’s claims for chemotherapy were for services in a physician’s office. These services were typically accessed in the patient’s community.
Fast forward twenty years, and now most Medicare chemotherapy claims are in a “hospital,” more often than not a physician’s office that was sold to a hospital and billed under Medicare’s outpatient benefit. Medicare policy sets payment rates higher for the same service in hospitals, and patients and taxpayers pay higher cost sharing on those greater costs. 340B allows hospitals to buy drugs for less than physician office competitors. The combination of lower costs and higher pay means most cancer care is delivered in the hospital and most physicians are now employed by a hospital. Simple economics.
What this means for the patient is less convenient access to care, especially in communities that lack access to hospital services, which are typically rural or inner-city urban areas. For cancer patients who may be immunocompromised, it also means getting care in more dangerous settings, where infections are more likely and deadly.
The IRA will exacerbate this trend as the cuts to ASP were $5 billion less than the cuts Avelere estimates from the IRA.
Lawmakers and bureaucrats should never pretend to know more about a patient’s needs than their doctor. Instead of placing barriers to access, imposing restrictions on treatments, and limiting providers’ ability to operate, Congress should be frantically searching for ways to fix the failings of the Inflation Reduction Act. We need to support those providers who are treating our loved ones during their fight to stay alive. If we don’t there may be no one there to treat us in our time of need.