Many people are not aware of the partnership that exists between the physicians and drug companies. Until I started researching this topic I had no idea that doctors make commission off of the drugs that they prescribe. Did you know? If not, I hope this post sheds some light on a very controversial system that effects all Medicare beneficiaries, which is a huge chunk of Americans. Hopefully the Centers for Medicare and Medicaid Service’s (CMS) proposition will lead to a solution to this epic problem.
Believe it or not, Medicare pays each doctor 106% of the average sales price (ASP) for each drug that is prescribed. That’s right, more than 100%. The extra 6% is supposed to cover the drug’s ordering, tracking, storing, processing, and also account for the variation in prices that drug companies charge. The doctors receive a percentage from the drug companies for each drug they prescribe. The more expensive the drug, the more money the doctor makes. This creates the incentive to prescribe the most expensive drugs to Medicare beneficiaries.
After all, 6% of a $100 drug is just $6, but six percent of a $3,000 drug is $180. Medicare pays 80% of the ASP plus the extra 6%, but the patients are responsible for the other 20%. Many patients have supplementary Medigap coverage for this 20%, but as many as 6 million Medicare beneficiaries don’t have this extra coverage. Paying 20% of a $3,000 drug is $600! There is no way I could afford that extra cost, and most individuals can not.
As you can see this system is obviously broken and the ones it’s hurting the most are the seniors. Centers for Medicare and Medicaid Service (CMS) is aware of this issue and has decided to take action. CMS has developed a proposal, stating that they will provide a flat fee to doctors for administering a drug regardless of its price, along with a smaller percentage for the add-on payment. The idea behind Medicare’s proposal is to make the payment to physicians uniform, which will reduce the financial incentive to prescribe the more expensive drugs, and eliminate money from the prescribing decisions. Doctors will then be able to focus exclusively on which drug will help the patients the most, instead of which drug will make them the most money. Medicare is preforming a study of this change in a few geographical areas, and comparing prescription patterns and patient outcomes.
As you might have guessed, many drug companies and some physician groups are rebelling against Medicare’s proposal. Their argument is that the patients will be denied necessary drugs. But, why would that be the case? CMS will still be paying a percentage of the drugs; the fee the doctor will receive may just be less than before. Another argument they have is that financial incentives don’t drive physician prescribing behavior. Even though studies show they do. Put yourself in the doctor’s shoes. If you knew that 2 different drugs could help the patient and that you would pocket more money if you prescribe the more expensive drug, which would you pick?
It’s great that CMS is trying to fix this commission based system. This shows that Medicare wants to put the consumer first. I am shocked that this has been going on for as long as it has. Hopefully, this proposal will lead to a new system where there is no incentive, and seniors will not be over charged for the drugs that they need.