Guest Column | December 18, 2018

How Will Medicare's International Pricing Index Model Affect Biosimilars?

By Ronald W. Lanton III, Frier Levitt Government Affairs, LLC

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CMS has announced a new payment model that seeks to reduce out-of-pocket costs for patients. This payment model arises out of the Trump administration’s American Patients First Blueprint that was released earlier this spring. CMS is providing this notice of its proposed payment model via an Advance Notice of Proposed Rulemaking (ANPRM), meaning a formal proposed rule will be introduced in the near future. Comments close on this ANPRM on Dec. 31, 2018.

This in-depth proposal will be in three stages, with one focused on an international pricing index (IPI) model: “Specifically, the IPI Model would initially focus on Part B single source drugs, biologicals, and biosimilars that encompass a high percentage of Part B drug utilization and spending. The Innovation Center would test this model under section 1115A of the Social Security Act (the Act), which authorizes testing models expected to reduce program expenditures, while preserving or enhancing the quality of care furnished to beneficiaries. The model under consideration would include physicians, hospitals, and potentially other providers and suppliers in selected geographic areas. The IPI Model test would include the following components:

  • Set the Medicare payment amount for selected Part B drugs to be phased down to more closely align with international prices;
  • Allow private-sector vendors to negotiate prices for drugs, take title to drugs, and compete for physician and hospital business; and
  • Increase the drug add-on payment in the model to reflect 6 percent of historical drug costs.
  • Pay physicians and hospitals the add-on based on a set payment amount structure; CMS would calculate what CMS would have paid in the absence of the model, before sequestration, and redistribute this amount to model participants based on a set payment amount.”1

It is confirmed in the ANPRM that CMS will issue a proposed rule in the spring of 2019 with the model commencing in spring 2020. CMS stated the IPI would run from spring 2020 to spring 2025.

It is interesting that this IPI model by CMS comes on the heels of a Department of Health and Human Services (HHS) report on drug pricing. The report, titled “Comparison of U.S. and International Prices for Top Medicare Part B Drugs by Total Expenditures,” found “the prices charged by drug manufacturers to wholesalers and distributors (commonly referred to as ex-manufacturers prices) in the United States are 1.8 times higher than in other countries for the top drugs by total expenditures separately paid under Medicare Part B. U.S. prices were higher for most of the drugs included in the analysis, and U.S. prices were more likely to be the highest prices paid among the countries in our study.2 As in the ANPRM, this report focuses on the priority of a policy solution to rising Part B costs, which, unsurprisingly, are where specialty drugs reside. The report states “we calculated that the Medicare program and its beneficiaries spent an additional $8.1 billion (or 47 percent more) on these 27 products than it would have, if payments based upon ASP [average sales price ] were scaled by the international price ratios we calculated.”3

Assessing The Impact On Biosimilars

So how will the IPI affect biosimilars? At this point the answer is not yet known since this IPI model is the result of the drug pricing debate. Currently, there are problems with rising drug costs and adequate provider reimbursement. While biosimilars have been envisioned as a way to lower rising Medicare Part B costs, biosimilars were directly mentioned but not specifically targeted as a cause for higher pricing. It does seem biosimilars will be paid similar to what metrics are today. “CMS would base payment calculations for the alternative compensation on six percent (+6 percent) of the included Part B drugs' ASP, which would represent an increase from the +4.3 percent add-on that currently is paid due to sequestration, and would support appropriate drug utilization under the model structure.” According to CMS, the difference here is that since the alternative compensation that would be paid is not tied to directly to the administered drug’s ASP metric, the agency believes there would be no marketplace incentive to use a higher-priced drug when an alternative such as a biosimilar is available.

The administration’s potential plan for the distribution of Part B drugs, including biosimilars, is also unknown. The IPI discusses how CMS will reimburse vendors after allowing them to negotiate prices for drugs, take title to the drugs, and compete for physician and hospital business. This arrangement sounds exactly like the current payer structure with pharmacy benefit managers (PBMs), only adding a possible new middleman. The proposal suggests provider physicians will no longer be responsible for buying and billing Part B drugs. “Instead of buying drugs for their offices, physicians who chose to participate in the CAP [Competitive Acquisition Program] would place a patient-specific drug order with an approved CAP vendor; the vendor would provide the drug to the office and then bill Medicare and collect cost-sharing amounts from the patient.” This idea could create a myriad of possibilities, from having PBMs controlling product to an entire new class of unknown vendors emerging. With current transparency issues surrounding PBMs, a new payer-like entity could bring even more confusion.  

In conclusion, we don’t know enough about how this new pricing model will exactly work in regard to biosimilars or any other Medicare Part B drug. If you are a manufacturer, a hospital, an infusion provider, a specialty pharmacy, or an oncology physician, you should follow this comment period closely, since the outcome of this proposal will directly impact how all specialty products, including biosimilars, are distributed and reimbursed.

References:

  1. Medicare Program; International Pricing Index Model for Medicare Part B Drugs https://www.federalregister.gov/documents/2018/10/30/2018-23688/medicare-program-international-pricing-index-model-for-medicare-part-b-drugs
  2. Department of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation (ASPE). “Comparison of U.S. and International Prices for Top Medicare Part B Drugs by Total Expenditures” Pg. 1 https://aspe.hhs.gov/system/files/pdf/259996/ComparisonUSInternationalPricesTopSpendingPartBDrugs.pdf
  3. Department of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation (ASPE). “Comparison of U.S. and International Prices for Top Medicare Part B Drugs by Total Expenditures” Pg. 10

About The Author:

Ronald W. Lanton III, Esq., has over 25 years of experience in government affairs at the municipal, state, and federal government levels, with 15 years dedicated to the healthcare sector. He is currently the executive director and head lobbyist at Frier Levitt Government Affairs, LLC and senior counsel at Frier Levitt. He frequently consults Wall Street firms on financial issues related to the healthcare sector.

Lanton is a featured industry speaker on issues such as pharmaceutical safety and healthcare cost containment, and he has authored numerous articles regarding pharmacy and healthcare law. He earned a B.A. from Miami University and a J.D. from The Ohio State University. He is also the chair of the Biologics Committee for the New York Bar Association.