HHS Advances Payment Model to Lower Drug Costs



In late October, the U.S. Department of Health and Human Services, through the Centers for Medicare & Medicaid Services (CMS), announced and sought input on a new "International Pricing Index" (IPI) payment model to reduce what Americans pay for prescription drugs.

Under the IPI model, described in an Advance Notice of Proposed Rulemaking (ANPRM), Medicare's payments for select physician-administered drugs would shift to a level more closely aligned with prices in other countries. Overall savings for American taxpayers and patients are projected to total $17.2 billion over five years.

"In an era where the pharmaceutical industry is pricing drugs at levels approaching a million dollars -- and jeopardizing the future of our safety net programs -- the time has come to fix the perverse incentives in the Medicare program that are fueling price increases," said CMS Administrator Seema Verma.

The move from current payment levels to payment levels based on international prices would be phased in over a five-year period, would apply to 50 percent of the country, and would cover most drugs in Medicare Part B, which includes physician-administered medicines such as infusions. The model purports to "correct existing incentives to prescribe higher-priced drugs and, for the first time, address disparities in prices between the United States and other countries." Since patient cost sharing is calculated based on Medicare's payment amount, patients should see lower costs under the model.

For the first time in Medicare, the IPI model would create a system in which private vendors procure drugs, distribute them to physicians and hospitals, and take on the responsibility of billing Medicare. The plan is that vendors would aggregate purchasing, seek volume-based discounts, and compete for providers' business, thereby creating competition where none exists today. Under the model, instead of the current percentage-based add-on payment, physicians and hospitals would receive a set payment amount for storing and handling drugs that would not be tied to drug prices to remove any financial incentive to prescribe higher-cost drugs.

AMA President Barbara L. McAneny, MD, responded to the proposed rule with the following statement: "Physicians share their patients' concerns with the high cost of prescription drugs. We appreciate that the Trump Administration is working to address this important issue. The Administration's proposal for an International Pricing Index Model for Part B drugs 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 health care system. We look forward to working constructively with the Administration as it seeks feedback."

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