On Thursday, CMS issued an Advance Notice of Proposed Rulemaking to implement a new “International Pricing Index” (IPI) payment model designed to reduce the costs of prescription drugs, phased in over a five-year period. It would overhaul how Medicare pays for certain drugs by shifting payments for select physician-administered drugs to be based on international prices, covering most drugs in Medicare Part B and apply to 50% of the country, with the ability to scale up over time. The administration projects that this would reduce spending by $17.2 billion over five years. The proposed rule is expected to be released next spring and for it to take effect in the spring of 2020.
Under current policies, Medicare sets payments for physician-administered drugs at the average sales price in the U.S. market—plus a price-based add-on fee. This results in a system where Medicare pays 180% of what comparative countries pay for the most costly physician-administered drugs. Under the proposal, Medicare would set the payment for these drugs at a target price, or 126% of the average price other countries pay for the drug. These prices would be benchmarked against 16 other nations: Austria, Belgium, Canada, the Czech Republic, Finland, France, Germany, Greece, Ireland, Italy, Japan, Portugal, Slovakia, Spain, Sweden, and the United Kingdom. The IPI model would establish a system for private vendors to procure drugs, distribute them to physicians and hospitals, and have the responsibility of billing Medicare. This would allow for vendors to aggregate purchasing, seek volume-based discounts, and compete for providers’ business.
The pilot program would be authorized under the CMS Innovation Center, which was established through the ACA to test models that improve care, lower costs, and better align payment systems to support patient-centered practices for Medicare, Medicaid, or Children’s Health Insurance Program (CHIP) beneficiaries. The Trump Administration’s proposal follows the Obama Administration’s 2016 proposal that would have established a demonstration program to test if alternative drug payment structures would improve quality and value through a reduced reimbursement rate for hospital outpatient centers and high-cost drugs administered under Part B in doctors' offices. That proposal was ultimately withdrawn several months later after facing bipartisan opposition, including from House Minority Leader Nancy Pelosi and Senate Minority Leader Chuck Schumer.
NAHU commends the Trump Administration for advancing proposals to address the rising costs of pharmaceuticals. NAHU identified the high cost of pharmaceuticals in our Healthcare Cost Drivers white paper, where we identified that the factors driving the increases in pharmaceutical costs as: increasing utilization of prescription drugs; newer, higher-priced drugs replacing older, less-expensive drugs; fewer manufacturers and less competition, and manufacturer price increases for existing drugs. We further called for addressing these in our overarching position paper for reforming the nation’s healthcare system, Access, Choice and Affordability.