How Part B’s ASP system helps control costs for the government and seniors

Between Congress, the Medicare Payment Advisory Commission (MedPAC) and the Center for Medicare & Medicaid Innovation (CMMI), there have been a number of policy proposals of late that would change reimbursement for medicines covered by Medicare Part B, some of which may harm patient access to important treatments. As we debate these proposals, it’s important to levelset on how reimbursement works in the program today. Part B uses a unique payment mechanism known as average sales price (ASP) to calculate the price of most of the wide range of medicines it covers. Why is it so unique? ASP takes into account commercial market negotiation to save the government and seniors money.

ASP is a market-based reimbursement system created by Congress in 2003 that has helped manage medication spending, control costs for seniors and provide patients access to the medications they need. In general, it reflects the weighted average of all manufacturer sales prices, including all rebates and discounts negotiated between manufacturers and purchasers. This methodology allows the government and patients to benefit from discounts negotiated on physician-administered medicines in the commerical market.

Each quarter, manufacturers report to the Centers for Medicare & Medicaid Services (CMS) the various sales prices for their medicines that are covered by Part B, and CMS then updates and publishes the ASPs for those medicines. This enables the reimbursement in Part B to follow the trend of the commerical market and adjust as competition enters and drives down prices.

Take competition driven by biosimilars, for example. An Xcenda report found the ASP of many biologics and biosimilars has decreased more than 45% since biosimilar competitor products have launched. A Moran Company analysis found, on average, payment amounts for the top 50 Part B medicines decreased by 1.7% from the first quarter of 2022 to the second and competition was the primary driver of the decrease. In fact, the ASP decreased 7.5% or more between the first quarter of 2022 and the second quarter of 2022 for seven of the top 50 Part B medicines.

Since the ASP-based system was implemented two decades ago, it has had a significant positive impact on costs within the program. An analysis found that the ASP reimbursement model saved the government and seniors a total of $132 billion in Part B medicine spending from 2005 to 2017. The savings amounted to $4.4 billion in just one year alone.

Despite clear evidence the ASP system works, the price setting provisions of the Inflation Reduction Act enable the government to intervene and set their own prices for some medicines. This has consequences for Part B providers who rely on adequate reimbursement to keep their doors open. If the government sets the price really low under the new maximum fair price system, some providers may not be able to afford to prescribe those medicines. Similarly, MedPAC and CMMI are considering proposals that could cut ASP for certain medicines, including proposals that specifically target medicines approved via the accelerated approval program. We’ll dive more into the concerns with these proposals next week, but the outcome is the same: Heavy-handed government intervention in a system that has been working, threatening patient access to medicines through Part B.

As we discuss ways to continue to reduce costs for patients, it is important to recognize methods that have proven to be effective over decades. Learn more about Medicare Part B at PhRMA.org/PartB.