Trump Administration Proposes International Pricing Index for Medicare Part B Drugs

On Thursday, the Trump administration unveiled a new plan that it hopes will reduce Medicare’s costs for prescription drugs. Under the plan, announced by President Trump in a speech made at HHS, CMS could set its prices for some drugs—including high-cost biologics—based on the prices paid in other nations.

Under the proposal, CMS would, beginning in 2020 and extending until 2025, use a model that it calls the International Pricing Index (IPI). This index would allow Medicare to more closely align its Medicare payment amount for selected Part B drugs with prices paid in other nations, and would allow for private-sector negotiation of drug costs. The payment model would overhaul current reimbursement for Part B drugs—which is based on average sales prices plus 4.3% as an add-on—in favor of a target price derived from the international price index. CMS says that this approach could generate a 30% savings in total spending for the selected drugs.

The IPI model would include mandatory participation from physician practices and hospital outpatient departments the supply included drugs (which would initially comprise single-source drugs and biologics). CMS adds that it hopes this model will reduce out-of-pocket costs for Medicare beneficiaries, increase access and adherence, and create greater competition in the acquisition process for Part B drugs.

Announcement of the proposal came shortly after CMS revealed a new report comparing the prices charged by drug makers in the United States versus those charged in other countries. The report, which found that US prices are 1.8 times higher than ex-US prices, identified 27 products for comparison, and found that US prices are higher among 19 of these products. For another 8 products, US prices are within range of what other nations pay. According to the report, Medicare and its beneficiaries spend $8.1 billion more on drugs than they would if payments were scaled by international price ratios.

For example, in 2016, the United States spent approximately $1.7 billion on brand-name rituximab (Rituxan), but if Part B spending were scaled to an international volume-weighted price, it could spend approximately $640 million on rituximab. Similarly, 2016 spending on brand-name trastuzumab (Herceptin) was approximately $704 million, but could drop to approximately $340 million under the proposed plan.

Notably, the report’s figures do not take into account the prices of biosimilars; instead, it only compares prices for reference products. According to the report’s authors, this is in part because Medicare bills for biosimilars under separate billing codes.

In announcing the plan, Trump said that, with the new proposal, “We are taking aim at the global freeloading that forces American consumers to subsidize lower prices in foreign countries through higher prices in our country.” He went on to say that America conducts research and development for the rest of the world, and that “the world rigs the benefits of American genius and innovation,” and that seniors pick up the tab.

CMS will receive comments on the IPI model until Monday, December 31, and plans to issue a proposed rule on the model in the spring of 2019.