Opposition to International Pricing Index for Part B Drugs Mounts

February 04, 2020 - A coalition of more than 40 conservative groups led by Americans for Tax Reform urged the administration to withdraw its International Pricing Index (IPI) proposal for Medicare Part B drugs.

CMS proposed the IPI payment model in October 2018, seeking to calculate its Medicare Part B reimbursement rate based on the prices in 14 other countries. But in the January 30 letter to HHS Secretary Alex Azar, the coalition takes issue with the use of “arbitrary and marketing-distorting policies to determine the cost of medicines” as an approach to “price controls.” 

The reimbursement rate for Medicare Part B drugs is calculated based on the average sales price in the US market, which includes negotiated discounts and does not rely on government price setting. The methodology is significantly different from the approaches taken in similar countries, some of which have single-payer systems.

“There is no negotiation and foreign governments often force innovators to accept lower prices in a ‘take-it-or-leave it’ proposition,” the coalition argues in its letter opposing the proposed IPI model. “This results in reduced or restricted access to new medicines and higher prices for those medicines that enter the market.”

The coalition explains that conservatives have been longtime opposers to price controls because of the potential for distorting benefits, such as natural incentives that the free market created. 

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Price controls on drugs hinder innovation, the development and, in turn, the supply of and access to new drugs “to the detriment of consumers, patients and doctors,” the groups further argue.  

The IPI proposal forms part of CMS’ implementation of President Trump’s blueprint from May 2018 to lower drug costs and reduce co-pays. It proposes a phasing down of the Medicare payment amount for selected Part drugs and biologicals to “more closely align with international prices,” the proposed rule reads. It allows “private-sector vendors to negotiate prices for drugs, take title to drugs and compete for physician and hospital business.” Increasing the drug add-on payment in the model to reflect six percent of historical drug costs would also “lead to higher quality of care for beneficiaries and reduced expenditures for the Medicare program,” the proposal adds.

CMS proposes for the IPI model to initially cover 50 percent of all drug claims under Part B and projects overall savings to total $17.2 billion over five years. 2016 spending for top Part B drugs would have been $8 billion lower if drug reimbursements had been at the average international prices, an HHS’ Office of the Assistant Secretary for Planning and Evaluation 2018 report shows. 

The proposed IPI model has sparked controversy related to the need for the US to rein in drug spending while safeguarding the country’s standing as a world leader in drug research and development. The US sees more launches of new drugs versus other countries, PhRMA says. 

The proposal has been met with criticism not just from conservative groups like ATR, but also lawmakers and industry trade associations. Critics argue that the model would only exacerbate the problem with drug spending, partly because some manufacturers may resist lowering prices.

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“This innovative environment is enormously beneficial to the long-term well-being of Americans and the efficiency of the US healthcare system,” the letter from the coalition reads. The investment required for R&D leads to more high-paying jobs and a stronger economy. But “price controls will undermine this system, suppress innovation and harm American competitiveness.”

The public comment period on the IPI proposed rule closed in December 2018, with more than 2,700 submissions. And the coalition led by ATR is not the only one raising concerns in the past few weeks. Others include industry group BIO, which argues that importing foreign price controls “prevents investors from being able to invest, and inventors from being able to invent.” 

PhRMA’s director of public affairs, Nicole Longo, outlines three reasons for the administration to abandon the IPI proposal. “We do not need to upend Medicare Part B, restricting access to today’s medicines and tomorrow’s cures, to help patients afford their medicines,” Longo writes. 

The Partnership to Fight Chronic Disease opposed the IPI proposal in a Monday statement, as well. “Any appeal of proposals to lower drug costs by relying upon international pricing indices evaporates with a close look at the serious flaws and dangers posed,” the new international coalition argues. 

Yet CMS Administrator Seema Verma reportedly told reporters last August that “we are fast and furious on” putting the IPI model out. “It’s a top priority for my department,” Verma said.

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A July 2018 USC-Brookings Schaeffer Initiative for Health Policy analysis on implementation issues with the model offers manufacturer strategies to minimize reductions in US drug revenue. 

These “might include eliminating sales in smaller markets with low prices, such as Portugal and Greece, if prices in those countries were factored into IPI prices and especially if country prices were not weighted by population or units,” the analysis reads. “Manufacturers might also agree to sell their products only if they obtained higher prices, or they might delay launching new drugs in countries that had historically benefited from low prices.”

“Alternatively, depending on the specific IPI model rules, manufacturers might reorganize into two independent companies, with one selling products only in the US and a separate company selling outside the US, so that the US company would have no international sales that would count toward setting IPI prices,” the analysis added. The Trump administration has yet to finalize the IPI model, but sources say a final rule is on the horizon as the administration continues to prioritize healthcare reform.