Trump’s Proposed Medicare Drug Pricing Experiment Stokes Fears Of Price Controls

President Donald Trump shakes hands with Alex Azar, Secretary of Health and Human Services (HHS), during an event at the HHS in Washington, D.C., on Thursday, Oct. 25, 2018. The Trump administration proposes cutting what Medicare pays for many costly drugs for cancer and other conditions to match lower prices paid by other advanced industrialized nations, whose governments control pharmaceutical prices. Photographer: Chip Somodevilla/Pool via Bloomberg

According to a recently released Department of Health and Human Services (HHS) report, Medicare is paying 80% more than other advanced industrialized nations for some of the most costly physician-administered medicines.

On October 25th, the Trump Administration announced plans to reduce the prices Medicare pays for physician-administered drugs. Under the proposed approach, the Centers for Medicare and Medicaid Services (CMS) would experiment with a new way of setting prices for most physician-administered drugs paid for by Medicare Part B.

Prices of Medicare Part B drugs would be gradually pegged to a new international index of prices rather than the average sales price established in the U.S. market. The five-year experiment would apply to half the country, and be carried out as a demonstration project through CMS’s “innovation center,” starting in late 2019. Interestingly, the Administration claims it has the authority to move forward with such a demonstration project without Congressional approval, based on provisions included in the Affordable Care Act (ACA). Namely, ACA created a CMS innovation center, which has wide discretion to conduct demonstration projects such as the proposed one.

The Administration estimates that implementation of the new pricing index would save Medicare $17.2 billion over a five year period.

The Trump Administration’s proposal is certainly bold and has the potential to significantly cut the prices of physician-administered drugs (e.g., infusion products). However, the plan has already encountered strong objections from the biopharmaceutical industry. It also raises questions concerning the appropriateness of the method used to calculate the international price index, and the fact that U.S. prices would piggyback on price controls set in non-U.S. jurisdictions.

Presumably the foreign drug prices used as a reference or benchmark would include the comparator countries named in the HHS report: Austria, Belgium, Canada, the Czech Republic, Finland, France, Germany, Greece, Ireland, Italy, Japan, Portugal, Slovakia, Spain, Sweden and the United Kingdom. Four of the sixteen comparators – the Czech Republic, Greece, Portugal, and Slovakia – stand out as nations with much lower Gross Domestic Product (GDP) per capita than the U.S.; about one-third of the U.S. Given that relative price levels are a function of income or GDP per capita, basing U.S. drug prices on a basket that includes comparators with significantly lower incomes is inappropriate.

President Trump said his administration would be taking the “revolutionary” step of allowing Medicare to directly negotiate prices with drug companies. One can question, however, whether “negotiation” is the correct word, given that when prices are pegged to an international average price index the government is effectively saying that this is the non-negotiable, non-market based price Medicare will pay for physician-administered drugs.

Building on the success Medicare Part D plans have had in terms of keeping beneficiary premiums at reasonable rates and containing outpatient prescription drug spending growth a feasible alternative would be to grant Medicare Part B regional contractors a similar set of formulary management tools for pricing and reimbursement of physician-administered drugs.

I’m an independent healthcare analyst with over 20 years of experience analyzing healthcare and pharmaceuticals. Specifically, I analyze the value (costs and benefits) of biologics and pharmaceuticals, patient access to prescription drugs, the regulatory framework for drug d…


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