Medicare Part B spending in four points

When it comes to Medicare Part B spending, there are four important factors to keep in mind.

Nicole LongoMarch 28, 2023

Medicare Part B spending in four points.

It’s that time of year again when the president releases his budget and questions arise about the solvency of the Medicare trust fund and Medicare spending more generally. Too often, critics point to spending on Medicare Part B medicines as a key driver of Medicare spending, but the data tells a different story. For example, next month the Medicare Payment Advisory Comission plans to vote on policy proposals that ignore the facts around Medicare Part B, and could harm patient access to both currently marketed and future medicines. 

Medications covered by Medicare Part B are typically administered by physicians in an office or hospital outpatient setting, like an emergency room. The program plays a key role in ensuring seniors and people with disabilities can access important health care treatments, including life-sustaining medicines that are infused or injected. Many who have been diagnosed with diseases like cancer, rheumatoid arthritis, autoimmune conditions and rare diseases often rely on treatments that are covered under Part B.

Payment for Part B medicines is often grounded in a market-based reimbursement metric known as the average sales price (ASP). ASP manages medication spending while also providing patients with access to the treatments they need. In general, a medicine’s ASP is the volume-weighted average of all maufacturer sales prices and includes all rebates and discounts that are negotiated between manufacturers and purchasers, with the exception of certain federal and Medicaid discounts and rebates. This system allows the government and patients to benefit from discounted prices negotiated on physician-administered medicines in the commercial market.

When it comes to Medicare Part B spending, there are four important factors to keep in mind:

1. Part B medicines make up less than 5% of total government Medicare spending. In 2019, only 5% of the $787 billion spent on Medicare services could be attributed to medicines administered under Part B in outpatient hospital settings or physician offices.  

2. Spending on medicines remains a small, stable share of Part B spending as a whole. In 2018, medicines were only 10% of total Part B expenditures. That means 90% of Part B spending is on other aspects of health care, such as hospital outpatient services and surgeries.

3. Prices for Part B medicines have grown more slowly than medical inflation. Research has found the volume-weighted average sales price for Part B medicines has remained steady year over year, suggesting that prices for prescription medicines and biologicals are not a key driver of program costs.

4. Part B’s ASP system saves the government and seniors money. Congress created the ASP system in 2003, and in 2005 it became a required metric for reimbursements of Medicare Part B medicines. One study found the ASP system saved the government and seniors a total of $132 billion from 2005 to 2017 in Part B medicine spending and $4.4 billion in 2005 alone.

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