A tale of two prices

There are two potential unintended consequences of ASP-based reimbursement. First, CMS posts a new ASP every quarter based on information submitted by drug manufacturers six months earlier. Consequently, when the supplier price rises, demand side reimbursement for the use of these drugs remains stagnant for two quarters. Physicians term this mismatch “underwater” pricing. Second, the lag in ASP-based reimbursement may have some perverse effects on the supply of generic physician-administered drugs.The lag in ASP reimbursement, however, forces generic manufacturers to assume at least some of the financial risks of these increased costs for a defined period of time. Facing these risks, generic manufacturers may opt to cease production of these drugs, outsource them to contract manufacturers and/or skimp on quality production. These behaviors have been cited as potential contributors to ongoing domestic drug shortages. We conducted the first empirical assessment of whether and which physician-administered drugs have experience significant disparities between their acquisition costs and Medicare reimbursement since the adoption of the ASP payment policy. We then tested two hypotheses: First, that these prices have differential rather than reinforcing price movements preceding shortage reports.  Second, that differential price movements are larger for shorted than non-shorted drugs during the period preceding shortage reports.   Our preliminary results suggest Medicare reimbursement and average unit prices do not move in tandem for many generic physician-administered drugs used to treat cancer.  This suggests that “underwater” pricing may be an important practice risk.