Reed Smith Client Alerts

The Trump Administration seeks comments on its latest plan to reduce prices for prescription drugs.  The plan would tie payment rates for drugs covered under Medicare Part B to amounts paid for such drugs in other developed countries, and would replace the current “buy and bill” system with a new drug distribution and billing model.

In a speech at the Department of Health and Human Services (HHS) on October 25, 2018, President Trump announced a new plan to reduce what Medicare pays for drugs covered under Medicare Part B, based upon lower prices available in other countries. The details of this proposed International Pricing Index (IPI) model are set forth in an advance notice of proposed rulemaking released by the Centers for Medicare and Medicaid Services (CMS).1  

The proposed IPI model would be implemented by CMS’s Center for Medicare and Medicaid Innovation (CMMI) pursuant to CMMI’s authority to test innovative payment and service delivery models under section 1115A of the Social Security Act, and would incorporate two basic elements:

  1. Replacement of “buy and bill” reimbursement for Part B drugs to which the model applies (Model Part B Drugs), when administered by hospital outpatient departments, physician practices and potentially other providers which are located in the IPI model geographic area (Model Participants), with a mandatory, modified version of CMS’s previous competitive acquisition program (CAP).  Specifically, Model Participants would be required to enroll with one or more private-sector IPI “Model Vendors” selected by CMS, which would acquire and provide Model Part B Drugs to the Model Participants for administration to Part B fee-for-service beneficiaries.  The Model Vendors would bill Medicare Part B for the drug itself, while Model Participants would bill Medicare Part B only for drug administration and a fixed “drug add-on payment.”
  2. New limitations on federal government reimbursement to the IPI Model Vendors for the Model Part B Drugs they provide, which would be determined by reference to the amounts that national health systems and potentially private-sector purchasers in 14 other developed countries pay for the products.  The IPI model is intended to reduce current ASP-based reimbursement for Model Part B Drugs by approximately 30% in aggregate over the five-year period of the model. 

While it is unclear whether any IPI model will ultimately be implemented, any such model carries the potential for significant disruption with respect to Part B drug distribution, payment, and pricing, with major potential ramifications for manufacturers, hospitals, physicians, distributors, pharmacies, group purchasing organizations (GPOs), pharmacy benefit managers, and health insurers, among others. 

CMS is accepting public comments on the ANPRM (Advance Notice of Proposed Rulemaking) through December 31, 2018, and has a Spring 2019 target date for the publication of a proposed rule and a Spring 2020 target date for implementation of a five-year demonstration project.