Medicare payment for medicines covered under Medicare Part is based on the medicine’s Average Sales Price (ASP), which reflects in general the weighted average of all manufacturer sales prices and includes all rebates and discounts that are privately negotiated between manufacturers and purchasers. This allows the government and beneficiaries to benefit from discounts negotiated on physician-administered medicines in the commercial market. In fact, an analysis found that the ASP reimbursement model saved the government and seniors a total of $132 billion from 2005 to 2017 in Part B medicine spending.
Spending on Part B medicines also continues to represent a small and stable share of overall Part B spending at only 10% in 2018. Recent research found the volume-weighted average sales price for Part B medicines has remained steady year over year, suggesting that prices for prescription medicines and biologicals are not a key driver of program costs. This is in part because Medicare Part B benefits from brand and generic competition, as well as private negotiation between manufacturers and commercial payers.
The market-based system used to reimburse providers for medicines under Part B has been successful at managing costs while supporting timely access to innovative medicines for beneficiaries, but there are also ways it could work better. We support reforms that enable Medicare and Medicare beneficiaries to benefit more from the lower prices negotiated by large commercial purchasers in the market, while protecting physician care quality and patient access. Learn more about those reforms here.
However, there have been a number of recent proposals to alter the Part B program that would put patients at risk. Proposals that rely on government price setting policies, under the guise of “negotiation” are the wrong approach. Whether through international reference pricing or other mechanisms, they threaten patients’ access to treatments and cures. For example: