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I found an article on NPR that talks about how insurance companies are making deals with drug makers such as Novartis, in respect to cost vs effect. Novartis is offering rebates to insurers based on how successful their new heart failure medication is at cutting hospitalizations and deaths. If the projected targets are met, the insurance companies get less, but if the drug fails at its targets, the companies get a bigger check.
The Obama administration is hoping to use this model in order to gain a foothold on Medicare drug prices. This approach could help at cutting add-on fees for doctors and outpatient centers,since drugs covered under Medicare Part B are first purchased by a physician and then dispensed. Medicare, in-turn, pays not only the sales price of the drug, but also a 6 percent add-on for storage and the cost associated with it, which in the private sector is called "buy and bill." This practice still dominates Medicare Part B.
If value-based-pricing were to become the norm, then this would put a damper on fees rewarding larger practices for buying drugs at outrageous prices, which would discourage the use of more expensive drugs when equally effective and cheaper alternatives exist.
Under Medicare's proposal, drug makers would have to agree to offer rebates, based on the price of their medication and its effectiveness. This would apply to some medications, but not procedures. In Medicare Part B, patients pay 20 percent of the cost of their drugs unless they have supplemental insurance that covers copay. The proposal would cut or completely eliminate those payments for certain medications that are most effective. The lowering of copayments could improve a patient's health by affecting what their doctor prescribes, as well as encouraging patients to stay on treatments. Medicare would then step in to make up the difference for the reduced or eliminated patient payment.
The question is, how much of a tax increase would this be? If Medicare went from paying 80 percent to 100 percent of copayments, how much more is it for tax payers? Or, would the rebates from drug companies help make up the difference?