WASHINGTON — The issue of skyrocketing drug prices has placed Big Pharma squarely in the crosshairs of Congress and the president for the last few years, making Martin Shkreli and Mylan household names (and not in a good way).
In 2018, the Trump administration took multiple steps to address the matter, beginning with the announcement of a blueprint for lowering drug pricing, “American Patients First.” One of President Trump’s aims was to “end global freeloading” — the often dramatically higher prices for drugs sold in the U.S. versus other markets. And one particular target has been Medicare Part B drugs — those administered by physicians and typically among the most expensive therapies.
Click here to read MedPage Today‘s story from Oct. 25, 2018, about a proposed overhaul. In the follow-up story below, we explore the Trump administration’s broader efforts to address drug pricing, including experts’ opinions regarding how such changes might affect the pharmaceutical market and patients.
An End to ‘Global Freeloading’
In October, President Trump announced a plan to adopt a new “International Pricing Index” model, which specifically hones in on drugs paid for through the Medicare Part B drug program. The plan would replace the “average sales price” (ASP) that determines what Medicare and beneficiaries pay for Part B drugs with a payment scheme based partly on prices charged in other countries (which in most cases are lower than in the U.S.) through a mechanism known as “reference pricing.”
Broadly speaking, reference pricing involves establishing a maximum amount that a payer will reimburse for a product based on a certain benchmark. In this case, the payer is the government and the target price would be tied to an international price index, based, in part, on prices paid in other economically similar countries.
Over the course of 5 years, the share of the drug’s price tied to the international price versus the ASP would grow, until overall prices for Part B drugs would drop, the administration projected, by 30%.
More specifically, in the first year of the model, the Part B payment would be 80% based on the current ASP and 20% based on the international pricing index, with the share of ASP in the index progressively declining each year. After 5 years, Medicare Part B payments would be targeted at about 126% of the average international price, explained Health and Human Services Secretary Alex Azar during a briefing with reporters in late October.
While many specifics were absent from the plan, an October HHS press release estimated that the index would save taxpayers and patients $17.2 billion over 5 years.
The new model also aims to pilot significant changes to payment mechanisms for distributors and providers.
Instead of a “buy and bill” operation, where doctors’ offices contract with wholesalers and group purchasing organizations that buy drugs from manufacturers and then resell them to providers, physicians would have the option to use private vendors who “retain ownership”and distribute the drugs to hospitals and doctors offices. These third-party vendors would also be responsible for billing Medicare themselves.
According to the proposal, the program would be piloted in half the country — although the specific geographic regions remain unnamed — in the first year and involve only biologics and drugs made by a single manufacturer. Over the ensuing 5-year period, Medicare would phase in additional products to ultimately include 90% of all Part B drugs, said Azar.
Experts Weigh In
“A lot of people have looked at the fact that drugs are cheaper in almost every country in the world than they are in the U.S.,” said Jack Hoadley, PhD, research professor emeritus at the Georgetown University Health Policy Institute here.
But if drug prices in the U.S. are somehow “magically” linked to prices paid in Europe, causing prices to fall in the U.S., “manufacturers are not going to sit there and say, ‘That’s fine. We’ll just see a drop in our revenue… They’re going to find a way to make that up,” which could mean raising prices in those other countries, he said.
Curiously, raising prices abroad would impact prices in the U.S. if U.S. prices are tied to those of other developed nations, he noted.
Until the administration clearly defines what it means by “reference pricing,” and until modeling is done on what manufacturers’ behavioral response could be, the impact of the new proposal is hard to measure, Hoadley said.
“I think the international reference pricing [proposal] makes complete sense, because we’re just not able to negotiate effectively,” said Gerard Anderson, PhD, of Johns Hopkins Bloomberg School of Public Health in Baltimore.
And the fact that a Republican administration introduced such a radical proposal reflects a “watershed moment,” as the ideas in it are “antithetical” to many conservatives, he added.
But the administration could go further in its changes to Part B, Anderson said. It could eliminate the incentive for doctors to choose the most expensive treatments. Under the current payment system, physicians are paid the ASP plus a percentage add-on fee. The higher the cost of the drug, the higher the add-on fee, and the stronger the incentive to choose the higher-cost drug, Anderson explained.
Doctors are used to earning substantial profits on dispensing these drugs, as much as “several hundred thousand dollars” he said, and while the Trump administration’s proposal reduces the amount physicians would receive for administering Part B drugs, it doesn’t entirely do away with that incentive, he said.
Anderson also questioned the idea of involving a third-party vendor, between the doctors and the government, adding “another level of bureaucracy and burden” and creating unnecessary administrative costs, he said.
Will it Happen?
Prospects for the International Pricing Index are uncertain, noted several of the experts MedPage Today interviewed.
Stacie Dusetzina, PhD, associate professor of health policy at Vanderbilt University School of Medicine in Nashville, said the proposal isn’t “realistic.”
“In essence, this plan relies on other countries to do our negotiating for us. To be able to index our price to other countries, we would need to know what prices they pay, which can be difficult to obtain now and will likely be harder to get in the future if pharmaceutical companies know these prices will be used against them in negotiations,” Dusetzina wrote in an email to MedPage Today.
Regarding the changes to how physicians are paid for administering Part B drugs, Dusetzina noted that it “seems obvious” that the percentage-based payment (and the perverse incentives that come with it) “is not the best way to pay physicians for their services.”
But the Obama administration encountered “fierce resistance” from professional organizations when it attempted to change how physicians are paid for Part B drugs.
“I imagine the [Trump] administration would face similar hurdles,” she said.
The idea of involving a third-party vendor as a substitute for physicians buying and billing Part B drugs seems dubious, Dusetzina suggested.
“The vendor that they describe… sounds a lot like a [pharmacy benefit manager], which makes it unclear how much they will help reduce spending (versus adding additional administrative costs to the system),” Dusetzina wrote.
While the concepts of the plan are “admirable” she wrote, the administration faces an “uphill battle” in implementing them.
Also, “[w]e should do more to negotiate for drug prices in the U.S., not merely piggyback on other countries’ efforts. We should also make sure that physicians are paid the same for delivering both high- and low-priced drugs,” Dusetzina concluded.
Other policy experts shared similar doubts about the proposal’s chances for success.
“It’s going to be a herculean task to get it through Congress,” Marsha Simon, PhD, president of Simon & Co., a healthcare consulting firm here, told MedPage Today.
She pointed to the recently tabled IMPROVE Act, a bill focused on coordinating care for children in the Medicaid program, which Simon said she believes failed to pass because of the unpopularity of the “pay-fors.” In this case, the bill would have been funded through penalties on drug companies that misclassified their drugs as generic instead of brand drugs in the Medicaid Drug Rebate Program.
When a drug is classified as a brand, manufacturers pay higher rebates than if the same drug is classified as a generic product, she explained. In the past, drugmakers have gotten away with categorizing their drugs as generics or “misbranding” them. Famously, Mylan, the maker of the EpiPen epinephrine auto-injector is accused of misbranding them as generic products and overcharging the Medicaid program more than $1 billion, Simon said.
The IMPROVE Act, elements of which had been pending for far longer under the ACE KIDS Act, which was part of IMPROVE, passed in the House but stalled in the Senate — because of drug company influence, Simon suggested.
In other words, if Big Pharma doesn’t like a proposal it won’t get passed in congress, and the international reference pricing proposal is no exception, Simon argued.
That said, the Center for Medicare and Medicaid Innovation (CMMI) has the authority to pilot the proposed model on its own and if it’s successful, make compliance mandatory without passing any legislation.
According to CMMI criteria, the model has to improve the healthcare program and not reduce access to be considered successful, Simon said.
And if it were implemented, Simon said she feels strongly that the index should also be applied to the initial price of drugs in Medicaid, in the 340B Drug program and in the Department of Veterans Affairs.
“It would have an enormous impact on our public programs,” she said.
Hoadley, who was also skeptical about the feasibility of an overhaul of Part B drugs, said it was difficult to say whether or not the plan would be implemented.
“The good news is that a lot of the options that are being talked about are not currently dividing people along ideological or partisan lines,” he said, and at a minimum, there is consensus on making changes to the Part B program.
On the other hand, there have been signs already of “hard pushback” from stakeholders, he said.
When the Obama administration put forward its own Part B proposal was “shut down” after oncologists, physician organizations, and certain disease groups argued that the changes would make drugs unaffordable and restrict access. (In December 2016, the administration announced it would halt the demonstration project.)
That proposal had two phases, Hoadley said. The first phase, which focused on shifting from paying physicians ASP plus 6% to a reduced add-on payment of 2.5% as well as a flat fee of $16.80, was the part that created all “the noise” from stakeholders.
However, the second phase of the Obama administration’s plan, related to value-based pricing — paying more for improved patient outcomes — while not entirely fleshed out, has re-emerged under the Trump administration, Hoadley noted. This suggests there may be a chance for a “longer conversation” about value-based pricing.
“Past precedent gives you reason to be skeptical about bipartisan compromise, particularly on some of the more out-of-the-box solutions, but it’s a new day in 2019,” Hoadley said, and it’s always possible that partnerships can be forged across the aisle.