Separate from the advertised cash-price cuts that grabbed headlines this month, Medicare is preparing to change how it pays for some of the most expensive drugs it covers. The Centers for Medicare and Medicaid Services says a “most-favored-nation” payment model will begin testing in January for high-cost medicines administered in doctors’ offices and clinics under Part B. Rather than touching pharmacy shelf prices, the model reaches into the plumbing of how physicians and hospitals are reimbursed for the drugs they buy and give to patients, a corner of Medicare that quietly drives billions in spending and a real share of what beneficiaries owe.
What Part B covers and why office-administered drugs cost so much
The change lands in a part of Medicare that rarely makes headlines but carries some of its heaviest bills. Part B is the outpatient side of the program, covering doctor visits, lab work and, crucially, the drugs a provider administers in a clinic rather than a pharmacy. Those medicines are among the most expensive the program pays for, and because they are billed through the medical benefit, most beneficiaries never see them broken out as “drug costs” at all.
Most people think of drug coverage as Part D, the pharmacy benefit. But a distinct set of medicines falls under Part B: the infusions and injections a clinician administers directly, from chemotherapy and biologics for cancer and autoimmune disease to certain eye and bone treatments. As the program’s own description of what Part B covers explains, these are billed as medical services rather than filled at a drugstore, and many carry price tags in the thousands or tens of thousands of dollars per course.
Under the current system, providers generally buy these drugs and are reimbursed based on the average sales price plus a percentage add-on. Critics have long argued that paying a percentage on top of the price gives little reason to favor a cheaper option and lets U.S. prices float far above what other wealthy countries pay for the identical medicine. That gap is what the new model is built to attack, and it is a corner of drug spending the Part D pharmacy negotiations enacted in recent years do not reach.
Free retirement updates: Enrollment and claim windows come and go, and missing one can cost you real money. The free Retirement Shield newsletter keeps you ahead of the deadlines that matter. Sign up free.
How the most-favored-nation benchmark would set payment
The model ties what Medicare pays for a covered Part B drug to the lowest price the manufacturer charges in a group of comparable developed nations, the “most-favored-nation” reference. According to the CMS announcement describing the payment model, it is structured as a test rather than a permanent nationwide rule, with the agency measuring the effect on spending and access before any broader adoption. Beginning in January, selected high-cost drugs would be reimbursed against that international benchmark instead of the current average-sales-price formula.
Because it is a demonstration, the details of which drugs, which providers and which regions are drawn in will shape how much it moves the needle. Drugmakers and some physician groups have historically resisted the approach, warning it could squeeze the margins that clinics rely on to stock expensive infusions and, in their telling, complicate patient access. Supporters counter that anchoring payment to global prices is the most direct lever the government has on drugs that Part D negotiation does not touch.
An earlier version of a most-favored-nation rule for Part B ran into legal challenges before it could take hold, which is part of why the new effort is cast as a payment model rather than a sweeping regulation. Structuring it as a test run through the agency’s innovation authority gives it firmer legal footing and a built-in evaluation period, but it also means the reach starts narrow and expands only if the results hold up. The January start is a beginning, not a finished nationwide policy.
What the coinsurance math could mean for beneficiaries
The reason this matters to a retiree’s wallet is coinsurance. Part B generally leaves the patient responsible for 20 percent of the approved amount, and on a drug that Medicare reimburses at tens of thousands of dollars, that share alone can run into thousands. If the model lowers the benchmark Medicare pays, the 20 percent figured against a smaller number would fall in step. That is a different structure from the Part D pharmacy benefit, where a separate annual out-of-pocket cap now limits total spending on filled prescriptions but does not touch office-administered infusions.
That link is also why the stakes are uncertain until the test is running. Beneficiaries in Medicare Advantage or with supplemental Medigap coverage experience Part B cost-sharing differently, and the model’s early scope may cover only a subset of drugs, so not every patient on an expensive infusion would see a changed bill in January. The clearer point is the mechanism: by resetting what Medicare pays providers, the demonstration aims at a cost that has sat largely beyond the reach of earlier drug-pricing efforts, with the size of the relief for any given patient a question the coming year will answer.
This article was researched and drafted with the assistance of artificial intelligence.
More Financial Reading
