Healthcare costs accelerated at a significant pace in 2014. The underlying cause for this increase varied among payers, with impacts related to the Patient Protection and Affordable Care Act (PPACA) influencing private health plans as well as federal expenditures through the Medicaid program.

While growth in Medicaid spending at state and local levels was less than 1 percent, federal Medicaid spending increased by more than 18 percent in 2014. Coverage of services for newly eligible enrollees now covered due to the PPACA accounted for the largest portion of the 2014 Medicaid disbursements.

Spending by the Medicare program also reflected rapid growth in 2014. Medicare spending increased by 5.5 percent overall, with prescription drugs being attributed as one of the primary factors. 

To better understand and keep track of this rapid growth in drug spending, the Centers for Medicare & Medicaid Services (CMS) studied 80 drugs that accounted for the most significant increase in funds spent by CMS. The study compared 40 drugs for Part D spending and 40 drugs for Part B spending. This information is now published and available for review on the new Medicare Drug Spending Dashboard, which CMS says will increase transparency regarding the rising prices of prescription drugs.

This article focuses on the Medicare Part B analysis only.

Basics of Part B Analysis

Anyone involved in managing drug costs, pricing markups, and billing drugs dispensed in the hospital setting understands the complexities of calculating the average spending per Medicare beneficiary for outpatient Part B prescription drugs. Being added to the list of high-cost drugs to be analyzed required the following:

  • A minimum number of beneficiaries prescribed the drug
  • Total annual minimums for spending
  • Minimum values for annual changes in average unit cost, resulting in cost increases impacting total spending
  • A change in the percentage of spending
  • A change in the percentage of the Medicare average sales price (ASP). 

Exclusions from calculation included:

  • Any beneficiaries in the Medicare Advantage program (~30 percent)
  • Drugs billed using “not otherwise classified” (NOC) codes (e.g., J3490, J3590, or J9999)
  • Part B claims submitted by critical access hospitals (CAHs), Maryland hospitals, and outpatient prospective payment system (OPPS) acute-care hospitals with no reimbursement due to the packaging of low-cost drugs into related procedures defined by ambulatory payment classification (APC) groups.

Once this list was compiled, CMS sorted the drugs based on Part B spending, utilization, and cost increases, and it identified the selection criteria for review of the three groupings for drugs reimbursed through Medicare’s fee-for-service Part B program (shown below).

  • Selection Criteria: 40 drugs administered by physicians and other professionals in the Medicare fee-for-service program under Part B
    • 15 drugs with high total program spending
    • 15 drugs with high annual per-user spending
    • 10 drugs with high unit-cost increases
    • Dashboard Insights: Additional detail for each drug provides further insight to the beneficiary out-of-pocket cost, as well as Medicare spending
      • Average Cost per Unit: Total Part B drug spending divided by the number of dosage units
      • Beneficiary Cost Share: The total dollar amount that beneficiaries using the drug paid that was not reimbursed by a third party
      • Overall Average Beneficiary Cost Share: The average amount that all beneficiaries using the drug paid out of pocket during the year. Shown for Part B drugs only.

Drugs with the Highest Cost

The following drugs distributed through the Medicare Part B program in 2014 accounted for the highest costs:

Rituximab ($1,501,312,601) is frequently audited for improper billing by the U.S. Department of Health and Human Services (HHS) Office of Inspector General (OIG) as well as payers. It is a monoclonal antibody therapy, not a chemotherapy, and may be used alone or in combination with chemotherapy. Rituximab is used in the treatment of certain types of non-Hodgkin’s lymphoma, chronic lymphocytic leukemia (CLL), and, in some instances, it may be administered to treat other conditions or diseases, such as rheumatoid arthritis, when patients have shown no response to other therapies. This drug improves the body’s own defense mechanism by targeting the CD20 antigen on B cells. The targeted cells are removed from circulation when, in response to therapy, the patient’s bone marrow is stimulated and releases new healthy B-cells into circulation.

Paclitaxel protein-bound ($276,345,661) is an antineoplastic medication used in the treatment of breast cancer. This product differs from “regular” paclitaxel in that the particles are bound in albumin (protein) derived from human blood. The protein-bound product allows for administration of higher doses due to the prevention of reactions that may be associated with the preservative used in regular paclitaxel. 

Under the OPPS APC reimbursement for outpatient infusion therapy, the protein-bound product receives $9.68 per billed unit in comparison to regular paclitaxel, which is unconditionally packaged, and therefore receives no payment for the outpatient Medicare encounter.

Arformoterol Tartrate ($148,844,292) is an inhalation solution approved by the Food and Drug Administration (FDA) that is used in the treatment of chronic obstructive pulmonary disease (COPD) and typically billed to the Medicare program through the durable medical equipment (DME) regional carrier. In the United States, chronic lower respiratory tract diseases, such as COPD, are diagnosed for as much as 14.2 percent of the adult population age 65 and older, and they have been identified as the nation’s third-leading cause of death. 

A published study comparing 30-day readmission rates demonstrated significantly lower rates for patients using arformoterol as opposed to patients prescribed nebulized short-acting beta-agonists (SABAs). These findings prompt the following questions:

  • Does this acute-care cost reduction related to readmission compensate for the increased cost of the drug? 
  • What benefit may be gained through quality improvements for hospital value-based purchasing and readmission reduction programs?

A common thread is seen in the presence of monoclonal antibody therapy across the categories for drugs with high costs per unit, cost share by the beneficiary, and average beneficiary cost share. Monoclonal antibodies are included in a category of drugs known as targeted therapy.  Common therapies for cancer treatment (chemotherapy) focus on killing a cell line when that cell line (e.g., lymphocyte) has mutated within the patient. Typically, the mutated cells begin to grow through rapid division to form new diseased cells. The non-targeted chemotherapy kills both the cancerous cells and the normal or healthy cells. 

The science behind the targeted therapy identifies specific features of the cancer cell that are different from normal healthy cells, thereby allowing the treatment to disrupt function only of the cancerous or diseased cells. 

Another type of targeted therapy involves anti-angiogenesis drugs that target the blood vessels within a tumor or mass and starve cancerous cells by removing their oxygen supply.

A Good Reason for Analysis

As one of the largest purchasers of prescription drugs in the United States, it is obvious that CMS must understand the underlying causes of this growth in spending, proactively identify trends, and develop methods for protection of program funds while operating under scrutiny of the public in order to improve the health of the nation’s aging population by providing high-quality, high-value, efficient care. While some drug costs soar, it is possible that through further study of long-term outcomes, CMS will find that the ends justify the means for spending on new and improved drug therapy.

As Medicare expands initiatives to control costs, hospitals as well as physicians and other providers should watch for future modifications to the Part B reimbursement of outpatient and prescription drugs, including a reduction in ASP-based payment methodology and a move toward flat-fee payment rather than percentage reimbursement for drug cost amounts above ASP. Other potential changes to payment models include outcome evaluations for reimbursements based on how effective a drug is shown to be.

The 2016 HHS budget focuses on prescription drug and opioid misuse and abuse, as well as overdose death prevention. Although much of this $99 million investment will be focused on reducing funds spent through the Medicaid program, there also will be an impact on Medicare spending through introduction of a Medicare Part D program that is intended to reduce or prevent prescription drug abuse by requiring high-risk beneficiaries to be directed to specified providers and pharmacies to obtain controlled substances.

Medicare Drug Spending Dashboard

National Health Expenditures 2014 Highlights

About the Author

Robin Zweifel is a senior vice president of revenue capture services for Panacea Healthcare Solutions Inc. Robin’s areas of expertise include clinical laboratory and chargemaster management, as well as infusion and pharmacy regulatory compliance.

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