President Trump today touted “bold” plans to lower drug prices in unspecific terms. Simultaneously, CMS issued an Advance Notice of Proposed Rulemaking (ANRPM), describing options to test Medicare reimbursement based on an “International Pricing Index” (IPI), under which U.S. drug prices would be benchmarked against 16 other countries that reportedly have lower drug prices. This proposal would only apply to drugs administered in doctors’ offices and outpatient hospital departments, including cancer treatments and injectable treatments, but it would not affect most prescriptions purchased at local pharmacies. Participation in the model would be mandatory for physicians and hospitals in certain geographic areas. According to HHS, the plan would save Medicare $17.2 billion over five years, with the cost of some drugs dropping by as much as 30 percent.

CMS Administrator Seema Verma attacked drug price hikes and “perverse” Medicare incentives in announcing the ANPRM, and said the new approach will eliminate incentives for doctors to prescribe more expensive drugs by reimbursing physicians with a flat fee instead of paying a percentage of a drug’s cost. The ANPRM proposed changing the 4.3 percent (post-sequester) drug add-on payment in the IPI model to reflect 6 percent of historical drug costs translated into a set payment amount.

Comments on the ANPRM will be accepted until December 24. CMS contemplates issuing a proposed rule in Spring 2019, with the potential model starting in Spring 2020.

CMMI to test direct price negotiations with drug makers

President Trump also said HHS would take the “revolutionary” move of allowing Medicare to directly negotiate prices with drug companies. The ANPRM describes how the plan involves using the Center for Medicare & Medicaid Innovation (CMMI) to test permitting private sector vendors to negotiate with drug makers, similar to how health insurers negotiate drug prices in Medicare’s Part D program.

ASPE finds Medicare Part B drugs 1.8 times more expensive in U.S.

In advance of Trump’s speech, HHS’ Office of the Assistant Secretary for Planning and Evaluation (ASPE) published a report this morning that found manufacturers’ prices to wholesalers and distributors for drugs with the highest spending under Medicare Part B in the U.S. are 1.8 times higher than in other countries. HHS Secretary Alex Azar tweeted this morning that the report shows “the current international pricing system has put America in last place.” Azar said Medicare spent about $8 billion more for drugs in the study than if the prices paid by the program were scaled to international prices. Azar is also scheduled to speak tomorrow at the Brookings Institution.

More drug pricing reforms to come

President Trump has previously railed against the pharmaceutical industry over drug pricing, saying the companies were “getting away with murder.” The Administration is also moving to require drug makers to disclose prices in their consumer advertising, as we discussed here. In addition, on October 10, Trump signed into law two bills – the “Know the Lowest Price Act” and the “Patients’ Right to Know Drug Prices Act” – aimed at preventing “gag clauses” in agreements between pharmacies and pharmacy benefit managers (PBMs), which some pharmacists said kept them from disclosing cheaper drug options to consumers. Meanwhile, in 2017, FDA approved more than 1,000 low-cost generics, with even more approved so far this year.

As the Administration continues its heightened focus on drug pricing reform, we will keep you apprised of further agency and legislative actions.