The idea, which wouldn't take effect until 2020, calls for the U.S. to pay rates closer to what other countries pay for the same drugs.
President Donald Trump floated an idea Thursday to reduce the amount of money Americans spend on prescription drugs by tethering Medicare Part B rates to the prices paid by other developed nations.
The idea—which the Centers for Medicare & Medicaid Services outlined in the form of an advanced notice of proposed rulemaking—is likely to face strong headwinds from political and business interests that successfully fought off the Obama administration's 2016 efforts to cut into these drug prices.
But the prior administration's plan "simply couldn't be more different than what we're talking about here," Health and Human Services Secretary Alex Azar said Friday during an appearance at the Brookings Institution. Azar described the Obama administration's failed initiative as an across-the-board cut that understandably drew opposition from hospitals and physicians. "That's not what we're doing here," he said.
Trump outlined the new plan Thursday alongside Azar, arguing that the time has come for the U.S. to get a fair deal on drugs.
"For decades, other countries have rigged the system so that American patients are charged much more—and in some cases much, much more—for the exact same drug. In other words, Americans pay more so that others can pay less," Trump said. "It's wrong. It's unfair."
"The world reaps the benefits of American genius and innovation while American citizens and especially our great seniors, who are hit the hardest, pick up the tab—but no longer," Trump added.
The price for 27 of the most expensive physician-administered drugs is 80% higher in the U.S. than it is in other wealthy countries, according to an HHS report released Thursday. Under an international pricing index, however, the U.S. prices would be benchmarked against 16 other nations: Austria, Belgium, Canada, the Czech Republic, Finland, France, Germany, Greece, Ireland, Italy, Japan, Portugal, Slovakia, Spain, Sweden, and the United Kingdom.
The end goal would be to push drugmakers to charge Americans less. But these companies could respond in less-than-desirable ways, such as by simply raising their prices in other countries or pulling out of some geographic regions, according to Peter B. Bach, MD, MAPP, director of Memorial Sloan Kettering's Center for Health Policy and Outcomes.
"This is NOT a proposal to lower drug prices, it is to lower reimbursement coupled with an expectation that lower reimbursement force[s] price lowering," Bach wrote in a tweet. "This is a bet, not a sure thing."
In addition to the international index, the idea calls for hospitals and physicians to be reimbursed for drugs at a flat rate, rather than receiving a percentage-based add-on. This is designed to remove any incentive providers may have to maximize their reimbursement by prescribing more-expensive drugs.
The administration said it is mulling the possibility of formally proposing this idea with a proposed rule next spring and a potential start date in spring 2020. The idea calls for a pilot program through the CMS Innovation Center, which was established by the Affordable Care Act, to be phased in over five years. It would apply to only about half of the country and save taxpayers and patients a projected $17.2 billion over five years, HHS said. In the meantime, the administration is collecting comments on the idea.
"Help us make it work," Azar said to stakeholders Friday.
Business World Skeptical
Bernstein investment analyst Ronny Gal wrote in a note to clients that the proposal "should be taken in stride" in light of how much clout the drug industry wields and how often the Trump administration has begun with a firm policy position only to soften during negotiations, as Politico reported.
Despite the administration's tough rhetoric, investors have been skeptical that the proposals will actually come to fruition and have a significant impact on drugmakers.
"Our first impression on Trump's Part-B plan is that it is a political tactic ahead of mid-terms, with low probability of meaningful actual changes," BMO Capital Markets analyst Alex Arfaei said in a note to clients Thursday, as Bloomberg reported.
The three drug companies likely to be among the hardest hit are Roche, Amgen, and Regeneron, but Johnson & Johnson, Bristol-Myers Squibb, and Eli Lilly would be affected as well, according to Gal's analysis.
Even so, drugmaker advocacy groups signaled that they are ready for a fight.
"The administration is imposing foreign price controls from countries with socialized health care systems that deny their citizens access and discourage innovation," Pharmaceutical Research and Manufacturers of America (PhRMA) President and CEO Stephen J. Ubl said in a statement contending the plan would harm American patients by reducing access to lifesaving drugs.
Biotechnology Innovation Organization President and CEO James C. Greenwood argued the plan could hinder research and development efforts.
"Adopting foreign price controls on American innovation puts America's patients last and diminishes their hope for a better future," Greenwood said in a statement. "Contrary to the president's repeated promises to end 'foreign free-loading,' this proposal embraces it and exacerbates its harmful effects. By adopting foreign price controls on the very small number of innovative medicines that make it to market, this proposal will severely chill investment in new cures and therapies for America's seniors."
Where Business Meets Politics
The idea has drawn lukewarm and even some positive responses from groups that have consistently opposed the Trump administration's healthcare policymaking.
American Medical Association President Barbara L. McAneny, MD, said her organization needs to better understand how the international pricing index model could impact patients, physicians, and the overall healthcare delivery system. "We look forward to working constructively with the Administration as it seeks feedback," McAneny said in a statement.
Families USA, which has frequently blasted the Trump administration, struck a positive note in response to the plan.
"Medicare Part B is the perfect example of misaligned incentives, and this proposed rule, if implemented, could pilot significant new ways to pay for drugs that align incentives so that patients get the highest value care, they have the best outcomes possible, and costs come down," said Families USA Executive Director Frederick Isasi in a statement.
Isasi noted, however, that this week's plan hasn't been formally proposed and comes less than two weeks before the midterm elections, as healthcare is the top-ranked issue on voters' minds.
"We hope this move to leverage the power of the federal government to reduce prescription drug prices is more than just election year posturing, and that it reflects a broader shift to using federal negotiating power to get unsustainable prescription drug prices under control for everyone," Isasi said.
And the president's usual panel of political opponents argued the plan should not be seen as terribly concrete.
"It's hard to take the Trump administration and Republicans seriously about reducing health care costs for seniors two weeks before the election when they have repeatedly advocated for and implemented policies that strip away protections for people with pre-existing conditions and lead to increased health care costs for millions of Americans," U.S. Sen. Chuck Schumer, D–New York, said in a statement.
Steven Porter is an associate content manager and Strategy editor for HealthLeaders, a Simplify Compliance brand.
The possible payment model (which hasn't been formally proposed) would apply to most Medicare Part B drugs, be phased in over five years, and cover about half the country.
Hospitals and physicians would receive a flat payment for storing and handling drugs instead of a percentage-based add-on to the drug prices.
The idea faces an uphill political battle, leaving business stakeholders unsure whether it will come to fruition.