Trump administration unveils plan to lower Medicare Part B prices by basing costs on other countries' pricing

President Donald Trump on Thursday announced a new payment model that would more closely align the cost of Medicare Part B drugs with the prices paid for the same drugs in other countries.

As they unveiled the "International Pricing Index" (IPI) model, federal health officials projected the proposal could save Medicare more than $17 billion over the course of a five-year pilot. The Centers for Medicare & Medicaid Services currently pays the average sales price plus 6% for Part B drugs, and in the new proposal would instead pay a target price based on international prices and look to alternatives for the add-on fee.

CMS aims to gather comments over the next several months ahead of issuing a proposed rule by next spring. Should the model be finalized, it would kick off in the spring of 2020, Health and Human Services officials said.

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During his appearance on Thursday, Trump decried “foreign freeloading” on U.S. drug spending and said the change would be positive for both patients and providers. “At long last, the drug companies in foreign countries will be held accountable for how they rigged the system against American patients,” Trump said. “This is not a change for industry or for companies or for pharma—this is a change for the people,” he said.

How it would work

Medicare currently pays about 180% more than other countries for drugs in Part B, which includes pharmaceuticals that are administered in a clinical setting, HHS Secretary Alex Azar said. Through the IPI model, HHS is looking to bring that figure down to 126%.

HHS is looking to first launch the model in about 50% of the U.S.—an atypically large population for an APM demonstration—and the new payment rates would be phased in over the course of five years. Initially, IPI would apply to Part B drugs that only have a single manufacturer, but by the end of the pilot would account for 90% of the medications included in that program, HHS Secretary Alex Azar said.

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In addition to adjusting prices, CMS is also:

• Planning to tweak add-on fees that it pays to providers. Providers earn an add-on fee that is calculated based on the price of a drug which incentivizes the use of more expensive options, Azar said. The agency is looking at several different options to address this, according to the notice. For example, it may move to a set fee per encounter or per month, which would detangle that payment from the cost of the drugs itself.
  
  CMS also studying whether the fee should vary between drug classes, specialties or between physician practices and hospitals. Azar said providers will either earn essentially the same in revenue, or could be making more, in the model.
  
  “Doctors and hospitals will receive steady or increased compensation from Medicare,” Azar said.
   
• Another piece in the model: Private vendors would acquire the drugs and distribute them to providers, and then would be responsible for billing Medicare themselves, a first in this population.
  
  CMS Administrator Seema Verma said the agency is looking for existing vendors, such as group purchasing organizations, to take ownership of those drugs, which would reduce providers’ upfront cost and eliminate an administrative concern.

Azar said that hospitals and physician practices that operate as their own vendors may continue to do so.

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Drug prices have been a key target for the Trump administration, and changes in Part B were signaled as part of the White House’s blueprint on the issue, which was released in May.

Ahead of announcing the new policy, the Department of Health and Human Services Office for the Assistant Secretary for Planning and Evaluation issued a report that compared the prices of 27 Part B drugs to those charged overseas. For 19 of these medications, the highest price was in the U.S.

For the eight others, the price stateside was lower than at least one of the 17 other countries included in the report. There was only one case where the U.S. price was lower than the international average, ASPE found.

“Other companies benefit from American pharmaceutical investment, and the cost fall on patients and taxpayers,” Azar said.

Azar said that more drug pricing policies are on the way, and that he’s open to all solutions on the issue—including moving Part B drugs into Medicare Part D, a plan that the administration has pursued but moved to the back burner for now.

Industry response

Drug industry group PhRMA called the proposal a “socialized” program that would threaten patient’s access to drugs.

“The United States has a competitive marketplace that controls costs and provides patients with access to innovative medicines far earlier than in countries with price controls, and it’s why we lead the world in drug discovery and development,” they said in a statement. “Americans have access to cancer medicines on average about two years earlier than in developed countries like in the United Kingdom, Germany and France.”

Meanwhile, provider groups took more of a wait-and-see approach in reacting to the proposal, saying they want additional details on the impacts.

The American Medical Association said the model “raises a lot of questions” but that it appreciates the administration’s efforts on lowering the cost of drugs. The American Hospital Association echoed their response, noting participation in the IPI model would be mandatory for physician practices, hospital outpatient departments, and potentially other Part B providers and suppliers that furnish the model's included drugs in the selected geographic areas.

"America's hospitals and health systems are pleased that President Trump and his administration are focused on reining in out-of-control drug prices, which continue to threaten patient access and the ability of providers to deliver the highest quality of care," said AHA President and CEO Rick Pollack in a statement. 

The American College of Rheumatology warned against policies that harm patients. “It is imperative that policymakers stay focused on the players who control drug prices and not penalize Medicare patients who depend on timely access to needed therapies,” it said in a statement.

CMS will accept comments on the notice until Dec. 31.