HHS Announces New Payment Model Proposal for Medicare Prescription Drugs

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HHS Announces New Payment Model Proposal for Medicare Prescription Drugs

Comments solicited on whether to include ASCs in the final proposed rulemaking

The US Department of Health & Human Services (HHS) unveiled a new payment model proposal that would drastically change the way Medicare pays for Part B prescription drugs. President Trump announced the proposed change during a speech at HHS on October 25. The proposal, broadly named the International Pricing Index (IPI) model, contains several reforms designed to reduce the prices Americans pay for prescription drugs.


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First, private sector vendors would replace physician groups as the primary purchasers of Part B drugs, similar to the unsuccessful Competitive Acquisition Program introduced back in 2003. Second, drug reimbursement would change to being based on historical costs rather than the current Average Sales Price plus six percent (ASP+6) structure. Finally, drug reimbursement would be calculated with a formula that considers prices in 16 other countries, so that Medicare reimbursement would align with international pricing.

The IPI model, as initially proposed, would only apply to drugs administered in physician offices and hospital outpatient departments (HOPD). HHS, however, has asked for comments on whether to include ASCs in the final proposed rulemaking, along with durable medical equipment (DME) suppliers and other providers that furnish the relevant drugs.

The model would start by focusing on single-source drugs and biologicals (including biosimilars), since drugs from a single manufacturer are easier to compare to international pricing. The model would phase in over a five-year period, with more drugs potentially being added in later years. Only about 50 percent of the country would be subject to participation, but the geographic areas selected for inclusion would be picked randomly.

It is important to note that this was an Advance Notice of Proposed Rulemaking (ANPRM), meaning that the proposal is still quite far from implementation. The actual proposed rule could come in spring 2019, and would be followed by a comment period and then a final rule. Actual implementation would not occur until late 2019 or early 2020 at the earliest.

It is uncertain whether the proposal will be able to garner the support of the necessary stakeholders. A number of pharmaceutical companies stand to lose money via the lowered drug payments, and have voiced displeasure over the federal government taking such control over the market. Other important stakeholder groups, such as the American Medical Association (AMA) and the American Hospital Association (AHA), have shown muted support, noting that many details still need clarification but that the intent to lower drug prices is a valuable one.

Comments can be submitted until December 31, 2018. Read the Federal Register entry and the HHS press release on the proposed payment model.