Pharma Unhappy with Trump Reference Pricing Proposal

Continuing his attack on high drug prices, President Donald Trump and Health and Human Services (HHS) secretary Alex Azar launched a salvo to change how Medicare pays for drugs administered in doctors’ offices and hospital clinics. A new proposal aims to reduce reimbursement for medicines administered to seniors under the Part B benefit to an amount pegged to the average price paid in foreign industrial nations. The change is projected to save more than $17 billion over five years by reducing the $30 billion annual spending on these drugs, largely injectables to treat rheumatoid arthritis, cancer, eye disorders, and immune disease.

The plan would establish a new “International Pricing Index” (IPI) payment model for certain expensive drugs covered by Part B, according to HHS. As described in an Advance Notice of Proposed Rulemaking (ANPRM), the program would be phased in over five years, initially in half of the country, and expanded if successful. The new program would move away from basing reimbursement for Part B drugs on average sale price (ASP) plus a 6% “add-on” fee, which has been criticized for encouraging physicians to prescribe more expensive products. The IPI model instead would engage private sector vendors to offer certain drugs to participating physicians and hospitals at a rate based on a Target Price derived from an international price index. The Centers for Medicare and Medicaid Services (CMS) estimates that the Target Price would produce approximately a 30% savings over total spending for the selected Part B drugs.

An analysis by HHS of US and international prices for leading Part B drugs finds that Medicare pays nearly twice as much as it would pay for the same or similar drugs in other countries. The study compares prices on 27 high-cost therapies in the United States to rates in 14 European nations, Canada, and Japan. In 2016, Medicare paid more than $17 billion for the 27 drugs, an amount that would be reduced by more than $8 billion under the new model. Those drugs that stand to lose the most revenue include Rituxan from Genentech and Biogen, Amgen’s Neulasta, Regeneron’s Eylea, and Genentech’s Lucentis.

About 10 years ago, CMS tried to revise how Part B pays for drugs through a Competitive Acquisition Program (CAP), which authorized approved vendors to provide drugs to physicians. The program failed, though, because it deprived doctors and clinics of the add-on percentage that is an important source of their income. In this latest proposal, CMS seeks to avoid push-back from the medical community by proposing to pay physicians and hospitals a “drug add-on amount” to equal the revenue derived from the current ASP+6% reimbursement system.

Although HHS describes the plan as a “free-market approach” that protects incentives for private sector development of new medicines, pharma companies blasted it as a way to impose price controls on important therapies that will harm patients. Instead of ending “foreign free-loading,” as Trump promised, the proposal “embraces it and exacerbates its harmful effects,” stated the Biotechnology Innovation Organization. BIO President Jim Greenwood predicted that adopting foreign price controls will “severely chill investment in new cures and therapies for America’s seniors.”