This story was originally published Oct. 25, 2018. As part of MedPage Today‘s year-end review of 2018’s top news, we are republishing it along with an update on what has happened since with Part B drug prices.
President Trump announced “bold and historic” steps he said will curb drug prices for Americans, especially seniors, during a speech at the Department of Health and Human Services (HHS) on Thursday.
The announcement followed the release of a new “International Pricing Index,” which specifically targets drugs paid for through the Medicare Part B program. These are physician-administered drugs, mainly infusion products such as chemotherapy and certain treatments for rheumatoid arthritis. 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.
Although many details remain to be worked out, an HHS press release said the plan would save taxpayers and patients $17.2 billion over 5 years.
“With the action I am unveiling today, the United States will finally begin to confront one of the most unfair practices… that drives up the cost of medicine in the United States. We’re taking aim at the global free-loading that forces American consumers to subsidize lower prices in foreign countries through higher prices in our country,” Trump said.
“For decades, other countries have rigged the system so that American patients are charged much more… for the exact same drug,” the president said. “The world reaps the benefits of American genius and innovation, while American citizens and especially our great seniors, who are hit the hardest, pick up the tab.”
The plan involves aligning Medicare Part B prices with those paid in other countries — a mechanism known as reference pricing — and overhauling how doctors are paid for Part B treatments. Thursday’s announcement triggered a 60-day public comment period. Implementation could begin as soon as late 2019, HHS said.
Drugmakers were quick to criticize the proposal.
“The administration is imposing foreign price controls from countries with socialized healthcare systems that deny their citizens access and discourage innovation,” said Stephen Ubl, president of Pharmaceutical Research and Manufacturers of America (PhRMA) in a press statement.
“These proposals are to the detriment of American patients. The United States has a competitive marketplace that controls costs and provides patients with access to innovative medicines far earlier than in countries with price controls, and it’s why we lead the world in drug discovery and development,” he continued. “Americans have access to cancer medicines on average about two years earlier than in developed countries like in the United Kingdom, Germany, and France.”
Following the president’s speech, HHS Secretary Alex Azar held a press briefing with Centers for Medicare and Medicaid Services (CMS) Administrator Seema Verma and FDA Commissioner Scott Gottlieb, MD, to walk through some of the proposed changes.
In his remarks, Azar explained what’s wrong with the current Part B drug pricing system and how the Trump administration plans to fix it.
For more than a decade, Medicare has been paying a fee based on the drug’s ASP plus 6% to physicians and hospital outpatient departments who “buy and bill” Part B drugs.
He argued, as other critics have, that this approach creates a “perverse incentive” for physicians and hospitals to choose the higher priced drug products. Azar also noted that the current buy-and-bill system can “jeopardize the financial health” of a practice because doctors must pay hefty prices for drugs, and then wait for the need to administer them.
On top of this problematic structure, the Part B program lacks the same negotiation tools as the Part D drug program, he said. Under Part B, “drug companies, by and large, control the price and Medicare pays the bill,” Azar said flatly.
Because Medicare can’t rein in Part B costs, per-beneficiary spending in the program grew 11% annually from 2011 to 2016, while Part D spending grew only by 3% annually during the same period, he said.
And Part B drugs are not cheap, he noted, especially in the U.S.
An HHS report issued just prior to the announcement compared prices of 27 Part B drugs in the U.S. with those of 16 comparator countries. It found that in the first quarter of 2018, prices charged by drugmakers to U.S. wholesalers and distributors (known as “ex-manufacturer prices”) were 1.8 times the average international ex-manufacturer price.
One reason for this difference is that drug companies “voluntarily choose to give bigger discounts” to foreign countries while refusing to make changes that would lower government spending for Part B patients stateside, said Azar. “If Medicare had access to the large discounts that drug companies gave economically similar countries in 2016, we’d have spent 47% less and saved $8.1 billion dollars on just the highest cost drugs in Part B.”
With these figures in mind, the administration proposed a completely different way of paying for Part B drugs.
CMS proposed a demonstration project known as the “International Pricing Index Model,” which Azar explained would “identify the difference between what we are paying and what other wealthy nations are paying.”
The program would be piloted in half the country in the first year and only look at those biologics and drugs that are 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.
The program would aim to reduce the prices for Part B drugs in the U.S. by 30% over a 5-year period, by a new Part B drug payment “indexed to the average international price.”
In the model’s first year, the Part B payment would be 80% based on the current ASP and 20% based on the international target index. In the second year, the payment would fall to 60% of ASP and 40% of the target index price, Azar explained. “When fully implemented,”after a transition period of 5 years, during which the share of current ASP would steadily drop, Medicare Part B payments would be targeted at about 126% of the average international price, Azar said (in comparison with the current 180%, as cited in the report).
The new model will also test changes to payment mechanism for distributors and providers.
Currently, doctors and hospitals must contract with wholesalers and group purchasing organizations that buy Part B drugs from drug companies, before reselling them to providers, but under a new pathway, private vendors would “retain ownership” then distribute drugs to physicians and hospitals and be responsible for billing Medicare.
Doctors and physicians may also “be their own vendor,” Azar said.
Regardless, CMS would reimburse providers with a “set payment amount” for “storing and handling the drugs” instead of the ASP and add-on model.
“Vendors would aggregate purchasing, seek volume-based discounts, and compete for providers’ business, thereby creating competition where none exists today,” explained an HHS press release.
Doctors could still choose to collect a beneficiary co-payment, which “may help them be more engaged in helping patients choose the lowest cost drug,” Azar said.
Verma stressed that the new payment model was a better deal for doctors: “The pool of funding is actually increasing.”
She added that it keeps doctors “whole” and reduces the administrative burden they feel today.
Azar said the new plan by lowering costs for Medicare beneficiaries would also increase patient adherence.
Stakeholders Weigh In
The American Hospital Association (AHA) applauded the Trump administration for its focus “on reining in out-of-control drug prices,” but expressed concern about the potential impact the program might have on 340B hospitals.
“We look forward to reviewing the details of the model closely,” said Rick Pollack, president and CEO of the AHA, in a press statement.
Barbara McAneny, MD, president of the American Medical Association, also applauded the proposal, noting, however, that it “raises a number of questions, and we need to have a greater understanding of the potential impact of the proposal on patients, physicians, and the healthcare system.”
Congressional Democrats were less enthusiastic about the proposal.
“I hope that the Trump administration continues to work on this crisis beyond issuing announcements two weeks prior to the midterm election. American families struggling to afford the costs of life-saving medicines need our help every week of the year,” said Rep. Jan Schakowsky (D-Ill.) in a press statement.
Other Democrats cited the potential for unintended consequences of this plan, while also wishing the administration had gone further.
“While it’s refreshing to see President Trump actually provide some specifics on how to address the skyrocketing price of prescription drugs, we simply must go further in providing substantial relief to seniors and anyone facing the sticker shock of paying for their drugs,” said Rep. Frank Pallone (D-N.J.) in a press statement.
“I’m concerned the President’s proposal could increase costs for seniors while also reducing access to lifesaving drugs. For seniors on Medicare, we must give the federal government the ability to negotiate Medicare Part D drug prices. It’s time to find workable solutions that will incentivize competition in the pharmaceutical marketplace and encourage the development of affordable and high-quality drugs, while also monitoring steep prescription drug price increases when they arise,” he added.
In May, when President Trump unveiled his blueprint for lowering drug prices called “American Patients First,” he outlined several specific tactics: stopping drugmakers from holding monopolies by blocking generics from accessing samples of their drugs for bioequivalence testing; accelerating approvals for over-the-counter drugs; and forcing foreign countries to pay more for prescription drugs — a problem he dubbed “global freeloading.” Also included within that plan was a pledge to transform the Medicare Part B program.
In August, CMS announced that Medicare Advantage plans would be allowed to apply a step therapy approach to Part B drugs. In step therapy, a form of prior authorization, patients must initially try taking a similar but typically cheaper medication before they can be prescribed a pricier one.
In early October, the president signed two bills into law that are intended to prevent “gag clauses” in contracts between drug retailers and pharmacy benefit managers, which forbid pharmacists from letting patients know when it would be cheaper to pay the cash price for a drug, rather than use their insurance.
Also in October, HHS proposed a new rule requiring pharma companies’ TV ads to include the list price of certain drugs paid for by Medicare or Medicaid.
“There’s more coming,” Azar promised.