drugs pills and medicare


Trump Medicare proposal: International Pricing Index model

Medicare would pay for drugs based on prices in other countries

On October 25, 2018, the Centers for Medicare and Medicaid Services (CMS) issued an Advance Notice of Proposed Rulemaking (ANPRM) requesting public comment on a series of policies aimed at changing the way that Medicare reimburses for Part B drugs, potentially through a proposed model that would more closely align Part B drug prices with an International Pricing Index (IPI) that CMS would develop.

November 2, 2018 | Health care

CMS seeks comment on Part B drug pricing model based on proposed international pricing index

Currently, Medicare reimbursement for separately payable outpatient drugs in physician offices, hospital outpatient departments, and certain other settings is based on a drug manufacturer’s average sales price (ASP) in the United States plus a 6 percent add-on payment. The add on payment is subject to sequestration, effectively reducing the current Part B drug payment to ASP +4.3 percent, rather than ASP +6 percent.

CMS proposes to use the IPI Model to test whether higher quality for Medicare beneficiaries and lower drug spending could be achieved in part by gradually reducing the Medicare payment amount for certain Part B drugs to align with international prices and creating a greater role for private sector vendors to negotiate prices for Part B drugs.

Providing further background on the impetus behind the ANPRM’s proposals, the Department of Health and Human Services’ (HHS) Office of the Assistant Secretary for Planning and Evaluation (ASPE) released a report in tandem with the ANPRM titled, “Comparison of US and International Prices for Top Medicare Part B Drugs by Total Expenditures.” The ASPE report found that prices for drugs paid by Part B were 1.8 times higher than the average prices for top-grossing drugs across 16 comparison nations. The report states that spending in 2016 for top Part B drugs would have been $8 billion lower if the drug reimbursements had been at the average international prices.

CMS estimates that the IPI Model would reduce total Medicare spending by $16.3 billion between 2020 and 2025, while also reducing beneficiary cost sharing.

The ANPRM was published in the Federal Register on October 30, 2018. Comments on the ANPRM will be accepted until December 31, 2018. CMS states that it is currently considering issuing a proposed rule in spring of 2019, with a goal of launching the IPI Model in the spring of 2020.

Building off of stakeholder comments

In developing the proposed IPI Model, CMS considered comments submitted in response to:

  • The president’s May 2018 policy document, “American Patients First Trump Administration Blueprint to Lower Drug Prices and Reduce Out of Pocket Costs”
  • A request for information included in the Hospital Outpatient Prospective Payment System (OPPS) proposed rule that sought comment on how CMS could structure a Competitive Acquisition Program (CAP) to help control drug spending

Disparities between domestic and international drug prices were cited as a key area of concern in the blueprint, which cites a Council of Economic Advisors white paper estimating that 70 percent of biopharmaceutical profits generated by Organization for Economic Co-operation and Development (OECD) member states are derived from the US market, while the United States accounts for only 34 percent of the OECD’s overall gross domestic product.

The CAP was first established under the Medicare Modernization Act of 2003, which established the Medicare Part D prescription drug benefit. The CAP originally operated from mid-2006 through 2008. The program has been suspended since January 1, 2009, because of contractual issues with winning bidders for the program and limited interest in participation.

Overview of the proposal

In the ANPRM, CMS lays out several goals of the proposal:

  • Reducing Medicare program selected expenditures and beneficiary cost-sharing for separately payable Part B drugs 
  • Preserving or enhancing quality of care for beneficiaries 
  • Offering comparable pricing relative to international markets 
  • Removing providers’ financial incentive to prescribe higher-cost drugs while creating revenue stability
  • Minimizing disruption to the current supply chain
  • Increasing Medicare efficiency and value to reduce federal spending and taxpayer dollars

To achieve these goals, the ANPRM outlines four distinct policies and seeks comment on each of them:

  1. Set the Medicare payment amount for selected Part B drugs to be phased down to more closely align with international prices
  2. Allow private-sector vendors to negotiate prices for drugs, take title to drugs, and compete for physician and hospital business
  3. Increase the drug add-on payment in the model to reflect six percent of historical drug costs 
  4. Pay physicians and hospitals the add-on based on a set payment amount structure; CMS would calculate what CMS would have paid in the absence of the model, before sequestration, and redistribute this amount to model participants based on a set payment amount

The IPI Model would be a large-scale demonstration administered by the Center for Medicare and Medicaid Innovation (CMMI) as a waiver program under Section 1115A of the Social Security Act.

CMS proposes that the IPI Model initially would cover 50 percent of Part B drug claims.

Physician practices and Hospital Outpatient Departments (HOPDs) in geographies selected for the model would be required to participate. CMS also is considering whether to include Durable Medical Equipment (DME) suppliers, Ambulatory Surgery Centers (ASCs), or other Part B providers and suppliers that furnish the included drugs.

CMS would require included providers in selected geographies to contract with at least one vendor for Part B drugs under the IPI Model.

Highlights of key elements of the proposal are provided below.

Phase down of medicare payment amounts

Over a five-year period, payments for most Part B drugs in selected geographies would be lowered to IPI-determined rates, establishing a model Target Price for each drug to achieve a roughly 30 percent reduction in Medicare spending for included Part B drugs.

The phase-in would occur as follows:

Year 1

80 percent of ASP and 20 percent of target price

Year 2

60 percent of ASP and 40 percent of target price

Year 3

40 percent of ASP and 60 percent of target price

Year 4

20 percent of ASP and 80 percent of target price

Year 5

100 percent of target price

As part of the phase-in of the IPI Model, years one and two would include single source drugs, biologicals, biosimilars, and multiple source drugs with a single manufacturer that CMS could identify with reliable international pricing data, before CMS begins direct data collection. Over years three to five, the scope of allowable drugs would grow to include a greater number of single-source drugs and biologicals as CMS develops a firmer protocol for international pricing data. The model would include only drugs that are administered incident to a physician’s service.

Although single source drugs comprise more than 50 percent of Part B drug charges, the ANPRM reserves the possibility of adding more drugs over time, including generics and multiple source drugs where pricing differences merit this approach.

The ANPRM proposes developing an IPI target price based on data from, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, Netherlands, and the United Kingdom, and seeks feedback on what countries to include.

Role of private sector vendors

To provide greater negotiating leverage, the IPI Model would contract with private sector vendors who would rely on the IPI pricing as the baseline for their negotiations with drug manufacturers. CMS would then reimburse the vendors according to an IPI formula, potentially with quarterly updates.

CMS intends to select three or more model vendors so that physicians and hospitals have a number of vendors from which to obtain drugs and to encourage vendor competition. CMS encourages “a variety of qualified entities to apply, including new business arrangements that could fulfill the role on a national basis.”

In addition to creating a competitive pricing environment for vendor selection, CMS intends for the model to create strong incentives for third-party vendors to implement innovative delivery mechanisms such as electronic ordering, frequent delivery, onsite stock replacement programs, and other technologies. CMS explains that to the extent it is legally allowable, vendors’ agreements with physicians and hospitals could include provisions for delivery fees and other vendor costs.

As proposed, the IPI Model would grant significant flexibility in defining eligible vendors, potentially including entities such as Group Purchasing Organizations (GPOs), wholesalers, distributors, specialty pharmacies, individual or groups of physicians and hospitals, manufacturers, Part D sponsors, and/or other entities.

Determination of a new add-on amount

CMS intends to structure the model such that physicians and hospitals would continue to bill Medicare for drug utilization (following model-specific instructions) and continue to collect beneficiary cost-sharing for included drugs.

Under the IPI Model, the ANPRM proposes that Model participants would be paid a set payment amount per encounter or per month for an administered drug, which would not vary based on the payment amount for the drug itself. The add-on payment amount would be a prospective amount determined annually based on the revenue that model participants would have received from the ASP +6 percent formula (absent sequestration) in the most recent year of claims data. CMS is considering whether to set a unique payment for each drug class, physician specialty, or physician practice (or hospital).

To reduce continued incentives for overutilization, CMS is considering creating a bonus pool, where providers could earn bonus payments for prescribing lower-cost drugs or practicing evidence-based utilization.

Interactions with other federal programs

The proposed IPI Model could have broad impacts on several measures used in other federal programs, including average manufacturer price, ASP, best price, and 340B pricing. It has the potential to reduce both reimbursements and rebate amounts.

The Medicaid Prescription Drug Rebate program grants state Medicaid programs a flat discount for covered drugs, based in part on a manufacturer’s best price on the open market. Due to the interactions with third-party vendors, IPI drugs would not factor into best price calculations, but the overall lowering of prices nonetheless could result in reduced drug prices for state Medicaid programs. The ANPRM requests public comments on how manufacturers might respond to the interplay between model vendors and Medicaid drug rebates.

The 340B drug program provides rebates calculated in a manner similar to the Medicaid Drug Rebate program, setting a ceiling price for each covered outpatient drug. The ceiling price is the maximum price a manufacturer can charge a covered entity for the drug, with covered entities entitled to retain any difference between a drug’s ceiling price and its reimbursement rate. Several types of hospitals as well as clinics that receive certain federal grants from the HHS may enroll in the 340B program as covered entities. In addition, 340B covered entities in the affected geographic areas would be included in the IPI Model, and would be supplied included drugs through a model vendor.

Stakeholder reactions

The Pharmaceutical Research and Manufacturers of America (PhRMA) released a statement that was sharply critical of the proposal, stating that the IPI Model would, “hinder patient access by severely altering the market-based Medicare Part B program by reducing physician reimbursement and inserting middlemen between patients and their physicians.”

The Pharmaceutical Care Management Association, which represents pharmacy benefit managers, backed the proposal, stating that the organization is “encouraged the Administration is exploring greater use of competitive pharmacy benefit manager (PBM) tools in Medicare Part B to ensure beneficiaries have access to medications that may otherwise not be affordable.”

The American Hospital Association (AHA) showed cautious optimism, stating that the organization is “pleased that President Trump and his administration are focused on reining in out-of-control drug prices, which continue to threaten patient access and the ability of providers to deliver the highest quality of care. We look forward to reviewing the details of the model closely, including its impact on 340B hospitals and the patients they serve.”

On Capitol Hill, responses were mixed.

Senate Finance Committee ranking member Ron Wyden (D-OR) released a statement that the proposal “was hardly the bold and swift action the president promised—it was an ‘advanced notice of proposed rulemaking’ that will not move forward for at least 18 months if at all.”

Rep. Kevin Brady (R-TX), chairman of the House Ways and Means Committee, and Representative Greg Walden (R-OR), chairman of the House Committee on Energy and Commerce issued a statement offering general support for the President’s approach to drug pricing, saying that their committees “will continue working with President Trump and his Administration to make good on his promise to the American people and will continue the Ways and Means Committee’s and Energy and Commerce Committee’s efforts to create an affordable and competitive marketplace for prescription drugs while maintaining our nation’s leadership role in medical innovation and ensuring patient access to new, lifesaving therapies.”

Contact us

Anne Phelps

Deloitte Risk and Financial Advisory
US Health Care Regulatory leader
Deloitte & Touche LLP


Daniel Esquibel
Senior manager

Deloitte Risk and Financial Advisory
Deloitte & Touche LLP


Ethan Joselow

Deloitte Risk and Financial Advisory
Deloitte & Touche LLP

Fullwidth SCC. Do not delete! This box/component contains JavaScript that is needed on this page. This message will not be visible when page is activated.

Site-within-site Navigation. Do not delete! This box/component contains JavaScript that is needed on this page. This message will not be visible when page is activated.

Did you find this useful?