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HHS’ Plan to Lower Medicare Part B Prescription Drug Prices: 5 Things to Know


Here are five things managed care executives should know about the proposed plan.

headshot Carrie Hanger


headshot emily cook


headshot O'neill




headshot Wilkinson


HHS has announced a new International Pricing Index (IPI) payment model that aims to reduce what Americans covered under Medicare Part B pay for prescription drugs. HHS projects savings for American taxpayers and patients to total $17.2 billion over five years.

HHS is accepting comments on the proposed rule until December 31, 2018, and plans to issue a proposed final rule in spring 2019. The plan is expected to roll out as a demonstration project in select areas of the country in spring 2020.

Here are five things managed care executives should know about the proposed plan.

  • The plan only relates to prescription drugs and biologics reimbursed under Medicare Part B. The plan will initially target Part B single source drugs, biologicals, and biosimilars that account for a high percentage of Medicare Part B spending. “The intention is for the scope of drugs and biologics covered by the plan to expand over time and for the plan to eventually include many drugs and biologics covered by Medicare Part B,” says Carrie A. Hanger, a partner and attorney in Nelson Mullins’ healthcare practice.

  • The new plan would use different payment models and rates. Private model vendors would be able to procure drugs and then distribute them to participants, which would include physicians, hospital outpatient departments, and any other providers CMS includes. “Model vendors would enroll with Medicare as suppliers and negotiate contracts with manufacturers to purchase and distribute drugs and biologicals, taking on the responsibility of billing Medicare,” says Emily Jane Cook, MSPH, JD, a partner at McDermott Will & Emery, a healthcare law firm.

Although participants would no longer purchase and bill Medicare for Part B drugs and biologicals, Medicare would continue to pay them for drug administration, Cook says. It would also pay an additional add-on payment for drugs and biologicals furnished to beneficiaries, though this payment amount would be intended only to cover lost revenue and limited administrative costs.

Related: Nine Ways to Deal with Escalating Drug Costs

Currently Medicare pays for Part B drugs based on the drug manufacturer’s average sales price (ASP) plus a 6% add-on; due to sequestration, the add-on is effectively reduced to 4.3%. Under the IPI model, when a drug’s ASP is higher than its international price, CMS will instead pay the lower international price (i.e., target price), explains Meagan O’Neill, manager, ECG Management Consultants, which creates strategies and solutions to transform healthcare. CMS will continue to pay an add-on per drug, although this will be a fixed amount rather than today’s ASP-based rate. CMS estimates this reimbursement change will reduce total Part B drug spending by approximately 30%.

  • The model would correct existing incentives for U.S. physicians to prescribe higher-priced drugs to their patients. Physicians and hospitals would receive a set payment amount for storing and handling drugs which wouldn’t be tied to drug pricing, says Drew Elizabeth McCormick, MBHP, JD, an attorney at McDermott Will & Emery. According to the Trump administration, this approach would eliminate financial incentives for physicians to prescribe higher-priced drugs for their patients, and would also remove the financial risk to physicians’ practices by freeing them from having to buy and bill high-priced drugs.

  • The new model would address the disparity in drug prices between the United States and other countries. CMS proposes to calculate the IPI model payment to model vendors for included drugs through a multi-step process that considers the average international price in certain countries for each Part B drug included in the model, the volume of included drugs reimbursed by Medicare, and an unspecified factor that would more closely align Medicare payment with international prices, McCormick says.

Related: Top Challenges In The U.S. Drug Market

Phasing in of the target price would occur over the five years of the model, as a blend of ASP and the target price. For each calculation, if the ASP is lower than the target price for an included drug, CMS proposes that the model would set the payment amount to the ASP for that drug, McCormick says.

  • Its approval is questionable. O’Neill foresees the proposal moving forward for multiple reasons. Using CMMI as its deployment vehicle allows the Trump administration to circumvent congressional approval. “The President has been talking about lowering drug prices for years; it was a central tenet of his 2016 campaign platform,” she says. “Moreover, the administration has a track record of moving forward with substantial changes despite significant industry opposition and drug pricing tends to be a bipartisan issue, further increasing the likelihood of the plan’s approval.”

But Constance A. Wilkinson, a member of the national law firm, Epstein Becker & Green, points out that the proposed reform will be fiercely opposed by the physician lobby and the pharmaceutical industry. “In the past, these groups have prevailed in defeating similar reforms,” she says. In fact, CMS’ 2016 proposed rule on Part B payment models that included elements similar to the current proposal was subsequently withdrawn in the wake of significant Rstakeholder opposition. “Nonetheless, the growing popular support for drug pricing reform may enhance the administration’s ability to effectuate the proposed Part B modifications.” 

If approved, Wilkinson says drug companies with branded drugs that are administered by physicians in the outpatient setting will see reduced revenues. “These reductions in revenue could impact manufacturers’ decisions to invest in research and development,” she says. 

Karen Appold is a medical writer in Lehigh Valley, Pennsylvania.


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