Today, the Congressional Budget Office (CBO) released an estimate of the savings that could potentially be realized if CMS were to implement the proposed payment reductions and value-based purchasing tools for physician-administered drugs covered under Medicare Part B. The estimate was made within the context of H.R. 5122, “A bill to prohibit further action on the proposed rule regarding testing of Medicare Part B prescription drug models.” As Congress is generally required by PAYGO to offset the costs associated with its legislation, failure to waive that requirement would require additional revenues or reductions to mandatory spending.

In its analysis, CBO estimates that:

• Over the next 10 years, the proposed model could potentially reduce Medicare spending on physician-administered drugs by $1.15 billion.
• If Congress prevents the agency from implementing the model as proposed, CMS could take other administrative actions to reduce spending on physician-administered drugs by approximately $750 million over the same 10 year period.
• Therefore, the “net” cost of preventing the proposed model from being implemented would be approximately $395 million over 10 years.

CBO states that these estimates are highly uncertain, especially surrounding the proposed value-based purchasing aspects of the demonstration, since CMS’ proposed rule did not contain concrete examples of these models. Notably, in their proposed rule, CMS acknowledged that there “may be some savings” due to changes in physician behavior in response to payment reductions, and that they intended to realize savings via the value-based purchasing phase of the model, but that there were not enough details included in their proposal to calculate an exact estimate. Therefore, there is no official agency estimate of the cost or savings accruing to the proposed model. Accordingly, CBO was forced to rely upon previous analysis of other agency initiatives (such as “least costly alternative” policies) for their estimate. To the extent that CMS’ eventual implementation of the model in a final rule or subsequent guidance would differ from what CBO analyzed, that would also impact the estimated savings.

In 2015 alone, Medicare paid $22 billion for physician-administered drugs, meaning that a $1.15 billion reduction in these costs over 10 years would account for a roughly 0.5% decrease in spending. Applied Policy is following the progress of the Part B payment demonstration, and is ready to answer any questions you might have. Leave a comment or email us at jscott@appliedpolicy.com to let us know how we can help.