Options to change Medicare payment for outpatient prescription drugs and biotechnology products

The debates over the Obama Administration’s health care reform law, and, more recently, the federal budget deficit and national debt have focused attention on the growth in costs of the Medicare program.  Three approaches to reducing Medicare expenditures command the most attention.  Under the first, changes to the Medicare delivery system – such as accountable care organizations (ACOs) and medical homes – are believed to have the potential to reduce the growth in costs in the program over time.  Under the second, tinkering with the reimbursement formulae in the Medicare program – pejoratively, government “price fixing” – will reduce the price that Medicare pays for an item or service, thereby reducing the growth in costs.  A third approach – converting Medicare to a premium support or defined contribution model – has been passed by the House of Representatives, but has failed in the United States Senate.

This article addresses the effect of these various approaches on Medicare payment for outpatient prescription drugs and biotechnology products.  It begins by analyzing the Administration’s ACO regulation and the effect that this regulation may have on reimbursement for outpatient prescription drugs and biotechnology products.  It then addresses legislative proposals to alter the Medicare reimbursement formulae for these products.  It concludes by speculating on how the Medicare reform legislation passed by the House of Representatives might affect reimbursement for outpatient prescription drugs and biotechnology products.

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