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Our Take: Trump seeks to base Part B drug prices on international index

Oct 29, 2018

In a speech at Health and Human Services (HHS) Thursday, President Trump proposed changing how Medicare pays for certain drugs, based on an international pricing index of drugs.

“This is a revolutionary change,” Trump said. “Nobody’s had the courage to do it, or they just didn’t want to do it.” He also noted that “Americans pay more so that other countries can pay less,” which he called “global freeloading” on prescription drugs.

HHS Secretary Alex Azar referenced a report his agency recently completed—which compared U.S. prices for 27 drugs with prices for the same drugs in 16 other countries—tweeting that “Among these drugs, on average, the US pays 180% more than the international price.”

HHS said the rule would include most of the drugs in Medicare Part B, which covers injectables and many specialty medications. If the proposed rule is enacted, it could save Medicare $17.2 billion in Part B spending over five years, according to Azar.

Our TakeFor those who call this a political stunt, given the timing of the upcoming midterm election, recall that Trump laid out his Blueprint to Lower Drug Prices in May. Some of what was announced aligns with what was proposed five months ago.

However, the language used in CMS’ press release was unusually cautious, hedging the agency’s bets on whether any of what is proposed would happen. As an example (italics are ours): “CMS is soliciting public comments on potential options we mayconsider for testing changes to payment for certain separately payable Part B drugs and biologicals (“drugs”).

That doesn’t sound very committed to us. CMS is often cautious when announcing new proposed rules, but we rarely see the agency waffle like this.

But if CMS is serious, here’s what it is proposing. It would reference price reimbursement for Part B drugs—likely the most expensive ones—to that of an average price paid by comparable industrialized countries. Medicare would eliminate the “buy and bill” payment system, in which physicians receive a 6 percent add-on payment over the drug’s average sales price (ASP), which is currently 4.3 percent because of sequestration. CMS says it will try to keep physicians “whole” by providing a flat fee per treatment that over time would be about the same amount as they receive now.

And instead of the ASP, CMS would pay a target price “derived from an international price index … designed to draw down Part B drug prices toward international prices over the course of the model.” The agency would phase in the target price over a five-year period.

Under the proposed model, selected vendors would distribute drugs to doctors and hospitals, which, as we said, would eliminate the “buy and bill” payment system.

CMS is considering other payment models for physicians and hospitals, and is open to comments on all of these points and more. But the bottom line is that CMS is trying to eliminate the incentive to prescribe drugs that are more expensive, because under the current payment model—with an add-on percentage based on ASP—practices make more money as the price of the drug rises.

We haven’t seen a response yet, but we expect to hear from providers whose practice has become accustomed to the revenue stream.

And then there’s Big Pharma, who has weighed in.

“The administration is imposing foreign price controls from countries with socialized health care systems that deny their citizens access and discourage innovation,” said Stephen Ubl, CEO of the Pharmaceutical Research and Manufacturers of America, in a statement. “The proposed Medicare Part B model would jeopardize access to medicines for seniors and patients with disabilities living with devastating conditions such as cancer, rheumatoid arthritis and other autoimmune diseases.”

We’re not sure how what CMS is proposing will lead to all of that, but considering that this is about price controls, it’s the response we expected.

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