Advocacy & Practice Updates — Advocacy & Practice

Trump Announces Part B Pricing Model as HHS Releases Report Comparing International Drug Prices

Trump Announces New Part B Drug Pricing Model

In an October 25, 2018 press conference, President Trump announced that he is taking another “bold historical action” to end “global freeloading” by allowing Medicare to set prices for some of the highest priced Part B drugs under a new model of payment. The new International Pricing Index (IPI) Model would lower costs for physician-administered drugs by resetting Medicare payments based on international prices and introducing competition.

His press conference coincided with the release of the Medicare: International Pricing Index Model for Medicare Part B Drugs Advance Notice of Proposed Rulemaking (ANPRM), which will have a comment period of 60 days after publication in the Federal Register. The ANPRM solicits public comments on CMS proposed options for testing changes to payment for certain separately payable Part B drugs and biologicals, including: 

  • phasing down the Medicare payment amount for selected Part B drugs to more closely align with international prices;
  • changing the 4.3 percent (post-sequester) drug add-on payment in the model to reflect 6 percent of historical drug costs translated into a set payment amount, would lead to higher quality of care for beneficiaries and reduced expenditures to the Medicare program; and
  • replacing “buy and bill” model with an IPI Model vendor system (similar to the Competitive Acquisition Program (CAP)), with physicians paid a “drug add-on amount” while moving the financial risk of acquiring the drugs and billing Medicare to the CAP-like vendor.

According to the press release, the IPI model would begin in 50 percent of the country, and would be phased in over five years. Today’s average sales price (ASP) plus a price-based add-on fee will gradually shift as Medicare sets the payment for Part B drugs at a Target Price - 126 percent of the average price other countries pay for the drug. With the model fully implemented, total payment for Part B drugs will drop by 30 percent.

Trump indicated that American patients will see lower Part B drug prices in Medicare and lower cost-sharing. For example, the announcement stated that a senior who receives an eye medicine that currently costs Medicare $1,800 a month but other countries just $300, would see their co-insurance drop from $4,400 a year to $900 a year after full implementation of the proposal.

According to the model, physicians will no longer have a perverse incentive to prescribe drugs with higher prices as the current 4.3 percent add-on fee for drugs would be replaced with a flat fee, independent of prices. Physicians will also be able to get out of the business of bearing the risk of buying and billing for drugs.

Medicare beneficiaries not covered by the model may also see drug costs go down, because the average price used to calculate traditional Medicare reimbursement will drop. Overall HHS projects the model will produce savings for American taxpayers and patients at $17.2 billion, with out-of-pocket savings potentially totaling $3.4 billion.

ASRS will review the new proposals and keep members informed as we prepare our comment letter. 

HHS Finds US Part B Drug Prices are 1.8 Times Higher Compared to Other Countries

 On October 25, 2018,  the U.S. Department of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation (ASPE) released a report, “Comparison of U.S. and International Prices for Top Spending Medicare Part B Drugs,” indicating that overall, prices and reimbursement rates for Part B drugs are significantly higher for U.S. providers than purchasers outside the U.S. -- 1.8 times higher for the top drugs by total expenditures separately paid under Medicare Part B. ASPE concluded that Medicare could achieve significant savings if prices in the U.S. were similar to those of other large market-based economies.

ASPE indicated that while the Medicare program does not use formulary decision-making to restrict the coverage and payment of Part B drugs, a number of other economically comparable countries do. Though these countries use their national health systems to negotiate lower prices in exchange for market access, drug manufacturers retain the choice whether to offer price concessions beyond those available to payers in the U.S.

To better understand the effect of these negotiations on prices paid for physician-administered drugs, ASPE compared the prices paid for physician-administered drugs in the U.S. to other selected countries. In the report, 32 drugs accounted for $18 billion in spending, out of a total of $27 billion on Part B drugs (67 percent). The 27 drugs included in the main analysis account for $17 billion (64 percent). The top product by expenditures in physician offices was Eylea (aflibercept), at $2.1 billion, ranked 22nd of all drugs by expenditures in HOPDs at $138 million in that setting. Lucentis was the 2nd highest product by expenditures in physician offices with Avastin (oncology dosage) ranked 8th.

ASPE did note several limitations may affect the data in the analysis, such as limitations by manufacturers in publishing data. For instance, for some drugs in the U.S., such as Eylea, data was only received from federal facilities. As a result, some prices may not be representative of overall prices paid. The sales volume and price for these drugs, including Eylea, was underestimated due to data reflecting mostly sales to federal facilities which are able to purchase the product at a lower price relative to the rest of the market. ASPE included Eylea in the analysis despite this issue, because the ratio itself was not an outlier and it underestimates the difference between U.S. and international prices rather than overestimates them.

Published October 25, 2018