Medicare seeking better value when paying for drugs

Kaiser Health News published an interesting article about Medicare investigating different ways of increasing cost-effectiveness when paying for drugs. One idea is to reduce the percentage that Medicare reimburses for the overhead of purchasing and administering drugs. The current scheme gives providers an incentive to recommend more expensive drugs since they would be reimbursed more themselves. Under the proposal, Medicare would reduce the payment for overhead by more than half. It seems like Medicare could go further by offering a percentage overhead reimbursement, up to a fixed limit, with exceptions being carved out for drugs that need special handling. However, that introduces complexity that might offset the savings. Medicare is also reportedly considering applying reference pricing for drugs, which could be an interesting way of giving patients an incentive to seek better value while preserving some choice. The article points out that these ideas come from industry.

Interestingly, not all of the ideas lead to short-term savings. The last idea discussed entertains reducing or eliminating patient copays for drugs that are considered effective. The idea is that while Medicare would end up paying more in the short-term, patients are more likely to adhere to their prescriptions, presumably enjoying better health and avoiding more expensive procedure costs.