On Thursday, October 25, 2018, the United States Department of Health and Human Services (HHS) and the Centers for Medicare & Medicaid Services (CMS) announced a plan for a new “International Pricing Index” (IPI) payment model, in an attempt to reduce the prices Americans pay for prescription drugs.
The new model, described in an Advance Notice of Proposed Rulemaking (ANPRM), would shift Medicare payments for select physician-administered drugs to a level more closely aligned with prices in other countries.
The IPI model would allow private vendors to obtain drugs, distribute them to physicians and hospitals, and take on the responsibility of billing Medicare. Vendors would be able to aggregate purchasing, seek volume-based discounts, and compete for providers’ business, creating competition with one another. The IPI model would also change the way physicians and hospitals are paid: instead of the current percentage-based add-on payment, they would receive a set payment amount for storing and handling drugs that is not tied to the price of the drug.
According to reports, the plan would be phased in over a five-year period, would apply for 50 percent of the country, and would cover most drugs in Medicare Part B – including physician-administered medicines such as infusions. The model would correct existing incentives to prescribe higher-priced drugs and, for the first time, address disparities in prices between the United States and other countries. Since patient cost sharing is calculated based on Medicare’s payment amount, patients would likely see lower costs under the model.
International Payment “Target Price”
One possible idea is setting an alternative payment for certain Part B drugs that would apply when the average sales price (ASP) is higher than an international price. Instead of paying based on ASP, CMS would pay for the drug based on a Target Price pulled from an international price index and designed to move Part B drug prices toward international prices over the course of the model. The agency estimates that relying on an international price index and setting a Target Price rather than using ASP would result in roughly a 30 percent savings in total spending for the selected Part B drugs in the model. This Target Price would be phased in over five years of the model.
Included Drugs
It is expected that the IPI model would initially focus on single-source drugs and biologics, as they make up a high percentage of Part B drug spending. In the first two years of the model, it would include drugs and biologics single source drugs, biologicals, biosimilars, and multiple source drugs with a single manufacturer. In years 3, 4 and 5, the scope would expand to incorporate more of these single source drugs and biologicals as more sources of international pricing data become available. The agency is also considering the best ways to include newly approved and marketed drugs in the model. The ANPRM seeks comment on additional drugs that could be added over time.
“President Trump promised that he would bring down drug prices and put American patients first,” said HHS Secretary Alex Azar. “With this innovative approach, he is now proposing historic changes to how Medicare pays for some of the most expensive prescription drugs, securing for the American people a share of the price concessions that drug makers voluntarily give to other countries.”
“In an era where the pharmaceutical industry is pricing drugs at levels approaching a million dollars—and jeopardizing the future of our safety net programs—the time has come to fix the perverse incentives in the Medicare program that are fueling price increases,” said CMS Administrator Seema Verma. “I appreciate President Trump and Secretary Azar’s bold leadership to lower seniors’ prescription drug costs and provide relief.”
It is estimated that overall savings for taxpayers and patients would be around $17.2 billion over the course of five years.
President Trump’s Speech
On the same day the ANPRM was released, President Donald Trump spoke about the plan and outlined some of the details, including that the proposal would bypass Congress by using the pilot program. During his speech, Trump noted the inefficiency between drug prices, “For decades other countries have rigged the system so that American patients are charged much more — and in some cases much, much more — for the exact same drug. In other words, Americans pay more so other countries can play less.”
PhRMA’s Reaction
Shortly after the President’s speech and ANPRM release, the Stephen J. Ubl, President and CEO of the Pharmaceutical Research and Manufacturers of America (PhRMA), released a statement disagreeing with the proposed action, noting that it would “jeopardize access to medicines for seniors and patients with disabilities living with devastating conditions such as cancer, rheumatoid arthritis and other autoimmune diseases. The administration’s proposal will also hinder patient access by severely altering the market-based Medicare Part B program by reducing physician reimbursement and inserting middlemen between patients and their physicians,” in part because “[t]he administration is imposing foreign price controls from countries with socialized health care systems that deny their citizens access and discourage innovation.”
The ANPRM will be available for public comment for 60 days, with comments due on December 24, 2018. CMS is also said to be considering issuing a proposed rule in the spring of 2019 on the potential IPI Model, which would start in spring 2020 and operate for five years, concluding in the spring of 2025. At that point, the Center for Medicare and Medicaid Innovation (CMMI) would have the authority to evaluate the success of the model, and if specific benchmarks are met, make the IPI a national policy.
Analysis
This proposal is unusual because it is similar to plans proposed by progressives Bernie Sanders and Elizabeth Warren. Reference pricing to those paid by other countries has the potential to cause huge disruption in the market place and reduce access of new medications. If companies don’t see a path to profitability for producing medicines for rare diseases or other indications, this potentially could cause a disruption in the research pipeline as companies will be forced to make very tough decisions.