Last October, the Trump Administration announced its plan to lower prescription drug prices by adopting foreign price controls on certain drugs covered by Medicare Part B. Many Medicare Part B drugs treat serious illnesses such as cancer. Over the months that have followed, the announcement has stirred debate and led to competing proposals.
Under the current pricing system, Medicare sets payments for physician-administered drugs at the average sales price in the U.S. market plus a 6% fee. The Administration’s proposal would allow Medicare to instead use an “international pricing index” to set target prices based on those paid by foreign countries that maintain strict price controls. The plan would also allow private sector vendors to negotiate directly with drug makers and change doctors’ prescription fees to a flat rate in an effort to discourage over-prescription of costly drugs.
The proposal was met with sharp criticism from BIO and PhRMA, the leading industry organizations for biotechnology and life sciences companies and research institutions. Both organizations expressed concern about the downstream effect of foreign price controls on innovation by American manufacturers, saying that the proposal would “severely chill investment in new cures and therapies.” BIO noted that “[c]ontrary to the president’s repeated promises to end ‘foreign free-loading,’ this proposal embraces it and exacerbates its harmful effects.” In responsive remarks, Secretary of Health and Human Services Alex M. Azar suggested that innovation would not be harmed because the proposal would only result in an estimated 1% reduction in manufacturers’ research and development budgets.
Trump’s proposal has made somewhat unlikely political friends and enemies. A group of congressional Republicans met with Secretary Azar in December, expressing disapproval of the move to impose “price controls.” Democrats, meanwhile, introduced three pieces of legislation in January that would, among other things, tie prices of all brand-name prescription drugs to the median price in five major countries. The Democratic proposal would also direct the Secretary of HHS to negotiate lower prices under Medicare Part D and permit importation of prescription drugs from Canada. Meanwhile, PhRMA continued to criticize Trump’s Part B proposal, stressing that it would put patient access to drugs that treat cancer, rheumatoid arthritis, and autoimmune diseases at risk, while Secretary Azar continued to defend it.
The proposal is part of a larger suite of drug pricing initiatives first announced in May 2018. The Centers for Medicare & Medicaid Services expect to issue a draft rule pertaining to the international pricing model in the spring of 2019, and to implement it in 2020.