Medicare Wants to Try a New Way of Paying for Expensive Drugs

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For drugs administered in clinics and hospitals, Medicare reimburses doctors a flat 6 percent of the price of the drug. This has never really made much sense, since it doesn’t cost any more to attach a $1,000 vial to an IV line than a $100 vial. So now the Obama administration is proposing a five-year test of a new system that pays a flat fee plus a smaller percentage of the cost of the drug. Here’s what it looks like:

The current rule is an update of an older rule that was even stupider than reimbursing based on price. But it’s still pretty stupid. If two drugs are about the same, and you can make $6 from one and $60 from the other, then you might as well prescribe the more expensive one. That’s exactly the wrong incentive. Not everyone sees it this way, of course:

The test program is also likely to meet stiff opposition from the pharmaceutical industry and some providers—especially cancer centers where many high-price specialty drugs are used—because of the drop in reimbursement….Providers may also feel they are being pressured by the federal government into selecting cheaper drugs they don’t feel are as effective.

This makes no sense. No one is being pressured into selecting cheaper drugs. You just won’t get paid an artificial bonus for avoiding them in favor of more lucrative options that don’t work any better. If that’s your idea of “pressure,” I’d recommend you go into a less demanding field.

The new system, I assume, is designed to recognize that administering a drug is mostly—but not entirely—a flat cost operation. The reason the cost isn’t completely flat is that clinics and hospitals have to pay for the drugs up front and keep them in stock. There’s a carrying cost involved in that, which means that expensive drugs really do cost a little more to administer than cheaper ones.

But not that much more. The new system seems well worth a try.

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SIX TRUTHS

Reclaiming power from those who abuse it often starts with telling the truth. And in "This Is How Authoritarians Get Defeated," MoJo's Monika Bauerlein unpacks six truths to remember during the homestretch of an election where democracy, truth, and decency are on the line.

Truth #1: The chaos is the point.

Truth #2: Team Reality is bigger than it seems.

Truth #3: Facebook owns this.

Truth #4: When we go to work, we're in the fight.

Truth #5: It's about minority rule.

Truth #6: The only thing that can save us is…us.

Please take a moment to see how all these truths add up, because what happens in the weeks and months ahead will reverberate for at least a generation and we better be prepared.

And if you think journalism like Mother Jones'—that calls it like it is, that will never acquiesce to power, that looks where others don't—can help guide us through this historic, high-stakes moment, and you're able to right now, please help us reach our $350,000 goal by October 31 with a donation today. It's all hands on deck for democracy.

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