CMS Considers Linking Medicare Drug Payment Rates To International Prices

Author:Ms Alice Valder Curran, Beth L. Roberts, Elizabeth (Beth) Halpern, Stuart M. Langbein, Ken Choe, Christopher H. Schott, Kathleen A. Peterson, Ali Lakhani, Samantha D. Marshall and Margaux J. Hall
Profession:Hogan Lovells

On October 25, 2018, the Centers for Medicare & Medicaid Services (CMS) issued an advance notice of proposed rulemaking (ANPRM) describing a potential mandatory model to test Medicare reimbursement based on an "International Pricing Index" (IPI).1 Medicare would pay private sector vendors for Part B drugs at rates established using the IPI, and participating physicians and hospitals would receive an "add-on" payment. Under the IPI model, U.S. drug prices would be benchmarked against the reportedly lower drug prices in 14 other countries. The IPI model would seek to permit Medicare to more closely align its Medicare payment amount for selected Part B drugs with prices in other nations, reduce out-of-pocket costs for Medicare beneficiaries, increase access and adherence, and create greater competition in the acquisition process for Part B drugs.2 According to the CMS, the model would save taxpayers and beneficiaries US$17.2 billion over five years (2020-2025), with Medicare's total spending on the selected drugs dropping by as much as 30 percent.3

The CMS will accept comments on the ANPRM until Monday, December 31, 2018. The CMS is considering issuing a proposed rule that would describe the model in more detail in spring 2019, with the goal of starting the model in spring 2020.4

The CMS announced the potential model in the wake of the release of a report from the Department of Health and Human Services Office of the Assistant Secretary for Planning and Evaluation (ASPE) that found manufacturers' prices to wholesalers and distributors for drugs with the highest spending under Medicare Part B are 1.8 times higher than those in other countries.5 According to the report, Medicare and Medicare beneficiaries could have saved approximately US$8.1 billion in 2016 if payments were scaled by international price ratios.

Who would participate in the model?

The mandatory IPI model would include all physician practices and hospital outpatient departments (HOPDs) that furnish the model's included drugs in the model's selected geographic areas.6 The CMS is also considering whether to include durable medical equipment (DME) suppliers, ambulatory surgical centers (ASCs), and/or other Part B providers and suppliers that furnish the included drugs.

The CMS anticipates the selected geographic areas would reflect 50 percent of Medicare Part B spending on separately payable Part B drugs.7 In selecting geographic areas, the CMS indicates that the two main factors to consider would be the most appropriate geographic unit (e.g., ZIP code, county, core based statistical area (CBSA), state) that reflects how care is delivered, and the number of geographic units needed to generate statistically credible findings. The CMS is considering using CBSAs as the primary unit of analysis in the model.

Which drugs would be included?

This model would apply only to selected separately payable drugs and biologicals (referred to by the...

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