CMS proposes using international pricing to slash U.S. drug prices
The Trump administration is trying another approach in its efforts to lower prescription drug prices in the U.S., this time in the form of a proposed rule from CMS that would base Medicare payments for drugs on international prices.
Citing data that shows the U.S. spends up to 1.8 times more than 16 other developed countries, including Austria, Canada, the Czech Republic, France, Germany, Japan, Spain, and the United Kingdom, CMS released an advance notice of proposed rulemaking (ANPRM) that floats the idea of shifting Medicare payments toward the system used by some of those countries, the International Pricing Index (IPI).
“The pharmaceutical industry offers deep discounts abroad while taking advantage of the payment system in Medicare Part B which drives the cost in the U.S., even though Medicare is the world’s largest drug purchaser,” CMS states in a press release accompanying the release of the ANPRM. “The IPI model would take on this issue and pay vendors for Part B drugs at a level approaching international prices.”
Currently, CMS reimburses physicians for Part B provider-administered drugs under the average sales price (ASP) methodology, on top of which physicians receive an add-on fee to cover the cost of acquisition. CMS does this without negotiating drug prices.
The switch to a payment methodology based on the IPI could result in a savings of $17.2 billion over five years for American taxpayers and patients, according to CMS projections.
A phased approach to IPI pricing
The ANPRM document calls for a phased transition to IPI pricing, taking place over five years. During the first year, Medicare would reimburse drugs with a blended payment of 80% ASP price and 20% “target price.” The target price represents a proposed IPI-based price, though CMS has not decided whether it would use an aggregate price for the top 16 most advanced economies using IPI or some combination of them. In year 2, the blend would move to 50% ASP and 40% target price, and so on until year 5, which would be 100% target price.
“For the first time in Medicare, the IPI model would create a system in which private vendors procure drugs, distribute them to physicians and hospitals, and take on the responsibility of billing Medicare,” CMS states in its press release. “Under the model, instead of the current percentage-based add-on payment, physicians and hospitals would receive a set payment amount for storing and handling drugs that would not be tied to drug prices. Therefore, the IPI model would remove the financial incentive to prescribe higher-cost drugs. The model also frees physicians from having to ‘buy and bill’ high priced drugs, which creates financial risk that jeopardizes their practice and the ability to serve their community.”
It’s not clear exactly what this would mean from a billing and revenue standpoint, but under this proposal physicians would no longer purchase drugs and bill Medicare. Instead, they would choose to participate with specific drug vendors to obtain the Part B drugs and biologicals they administer, while Medicare would pay the as-yet unspecified amount for storing and handling as mentioned above.
No guarantee CMS would make ANPRM a proposed rule
It’s important to note that the ANPRM document isn’t the same as an actual CMS proposed rule. At this stage, CMS is floating the idea as a possible proposed rule, and is actively seeking comments from stakeholders. It’s unclear how the ANPRM would affect payments for the top physician-administered drugs, typically infusion drugs for specific specialties such as oncology and high-volume injectable drugs utilized by many specialists.
A coalition of conservative groups came out against the ANPRM late last year, issuing a letter to the HHS secretary that opposed adopting the IPI, arguing that it would amount to importing a foreign “price control” model. “Conservatives have long opposed price controls because they utilize government power to forcefully lower costs in a way that distorts the economically-efficient behavior and natural incentives created by the free market,” the groups state in the letter. “When imposed on medicines, price controls suppress innovation and access to new medicines. This deters the development and supply of new life saving and life improving medicines to the determent of consumers, patients, and doctors.”
Assuming the ANPRM becomes a proposed rule, CMS would try to issue an updated version as a proposed rule later this year with an eye toward launching a pilot model of the program in the spring of 2020, targeting specific geographic areas using Core Based Statistical Areas (CBSAs) or the more widely known Metropolitan Statistical Areas (MSAs).