Will the U.S. adopt global reference pricing?

 

How the reimbursement of Medicare Part B Drugs might change in 2020

 

By Lauren Pegas, VP, Senior Oncology Strategist, Managed Markets, EVERSANA and Matthew Pakizegee, Pharm.D., M.S., Medical, Government Policy Systems (GPS) Associate, Managed Markets, EVERSANA

There are many things that Americans get from outside our U.S. borders. Our top imports include oil, machines, and cars; our iTunes and Spotify accounts are stocked with The Beatles, U2, and Ed Sheeran; and you practically can’t go to any city in America without being able to order a pizza, tacos, or sushi. Although it is true that our country has adopted many things that have improved our lives from outside the U.S., one thing we have not made efforts to adopt is how pharmaceutical drugs are priced outside of the U.S. – that is, until now.

The U.S. Department of Health and Human Services (HHS) is considering proposing a plan that has many moving parts, one of which could potentially take the price that Medicare pays out to providers for Medicare Part B drugs and turn it on its head. Currently, providers in the United States are reimbursed for Medicare Part B drugs based on the Average Selling Price (or ASP); however, the new proposal explores ditching ASP for a model that references how much the same drug is being paid for across multiple countries outside of the U.S. Let’s take a look a closer look at the “Medicare Part B International Pricing Index Proposal” (IPI) and what it might mean to our industry in the coming years, keeping in mind that although this potential change is being driven by Medicare, most commercial payers do follow Medicare’s lead closely.

We’ll start by homing in on which drugs the IPI could potentially impact – specifically, those that are paid for by Medicare Part B. Part B covers medications administered through infusion or injection in a variety of settings, including physician offices, hospital outpatient clinics, and patients’ homes.

The IPI proposal aims to decrease prices of these physician-administered Medicare Part B products using three approaches, which may or may not be used in combination:

1. Implementing the aforementioned international drug price reference,

2. Changing physician reimbursement from a percentage of ASP to a flat fee, and/or

3. Allowing private-sector “vendors” to act as price-negotiating middlemen between manufacturers and administering physicians

Such a proposal, if enacted, would have far-reaching implications across the pharmaceutical market, with the potential to disrupt care for patients receiving any of the 600 drugs currently covered by Part B (think infused chemotherapy or immunotherapy, for example). To better understand each approach and possible challenges related to implementation, let’s take a closer look, tackling the reference pricing option first.

International reference pricing is a common practice used outside of the United States, historically by foreign governments, to control drug prices. Reference pricing occurs when one country, call it Country A, references or indexes the price of a drug across multiple other countries, call them Countries B-G, in order to set Country A’s drug price. Although this practice has been going on in “rest of world” countries for a number of years, the concept of price referencing ex-U.S. markets to determine U.S. prices is both a new and rather difficult idea to implement for a number of reasons.

For one thing, many countries being considered for comparison in the U.S. reference basket have per capita gross domestic product (GDP) that is substantially lower than that of the United States. Greece, for example, has a per capita GDP that is only half that of the U.S., so the price of a drug in Greece would be substantially lower than in the U.S. Another potential issue is that many drugs may not yet be available in the countries being referenced, considering that most global launch sequences have the United States as a first mover. Finally, some reference countries may have approved biosimilars (bioequivalent copies of the same molecule) that may not be approved in the United States. Mixing the price of biosimilars in with the price of the approved, branded agents would significantly lower the average price point of the international market basket. All of these issues would have to be overcome in order to bring international price referencing from theory to execution.

The next aspect of the controversial IPI is a shift in how physicians are reimbursed for buying and billing Medicare Part B drugs. Medicare currently reimburses physicians the average selling price (ASP) plus 4 percent to procure, store, and administer Part B drugs. Remember, U.S. ASP reflects the weighted average of all manufacturer sales prices and includes all rebates and discounts that are privately negotiated between manufacturers and purchasers (with the exception of Medicaid and certain government discounts and rebates).

If providers are paid an HHS-determined flat fee rather than a percentage of ASP, it is fair to ask whether providers will be adequately reimbursed for the capital and risks required to procure and store Part B medications. In the case where a physician is dispensing high-value oncology biologics, for example, the answer is likely to be no. This monetary gap in making the physician whole could lead to added administrative burdens and lower reimbursement that could potentially disrupt clinical care.

The last approach of the proposal recommends that the Centers for Medicare & Medicaid Services (CMS) contract with private-sector vendors, who would acquire Part B drugs from the manufacturers, sell those drugs to physicians/hospitals, and then be reimbursed by Medicare using the International Pricing Index (IPI) as a price ceiling. In this situation, there are a lot of unknowns. First off, CMS does not define who would play the role of these vendors, which raises the question of just who would carry out these manufacturer price negotiations: Wholesalers? Distributors? Pharmacy benefit managers? Group purchasing organizations? The proposal also does not map out exactly how these vendors would be compensated except to say that providers would pay vendors for distribution costs.

A similar Medicare vendor program was tried but failed in the mid-2000s. The Competitive Acquisition Program (CAP) was launched in the United States in 2006; however, after facing multiple executional challenges, including the failure to deliver cancer treatments on the same day they were initially prescribed, CAP was suspended less than two years later at the end of 2008.

After examining all three approaches, we observe that the key gap in the IPI plan is the real-world link between concept and execution. Although there are certainly more questions than answers regarding the operational ability of the plan, it is also important to consider the potential ramifications for the pharmaceutical industry if IPI ever came to be.

In an IPI world, research and development (R&D) investments could be significantly affected because this proposal sends a strong negative signal for future innovations by potentially undervaluing medicine. On average, pharmaceutical manufacturers invest about a decade of time and $2.6 billion to develop a single FDA-approved treatment. Pressure from lower-priced products in the U.S. would make it more difficult to justify investments in new, innovative medications in the Part B setting. In fact, in December 2018, the Pharmaceutical Research and Manufacturers of America, or PhRMA, surveyed its members on the potential impact of IPI and found that 60 percent of companies hypothesized that “significant” R&D cuts would be “very likely” in oncology research if IPI came to pass.

Although the potential implications could range from significant to detrimental, we can take steps today to help prepare by better understanding how our marketed and prelaunch products may be impacted. Here are some ideas for pharma to consider:

• Understand your drug’s current and potential Global launch sequencing plans, focusing on the proposed U.S. reference countries (Austria, Belgium, Canada, Czech Republic, Finland, France, Germany, Greece, Ireland, Italy, Japan, Portugal, Slovakia, Spain, Sweden, and the UK)

• Track same-class competitor prices in these reference countries to gain a frame of reference on how price is evolving across the globe in the coming months

• Work with your forecasting team to model out pricing scenarios to understand and evaluate potential changes over the next five years

The Medicare Part B International Pricing Index Proposal is still just that, a proposal being considered to help address our growing Medicare population and the strain Part B costs put on society, but those costs need to be balanced out with the lives that these vital medications improve and save each day. By keeping your finger on the pulse of this type of important regulatory change, you can be prepared to optimize patient access despite the inevitable challenges that may come your way. medadnews

 

About the authors

Lauren Pegas is VP, Senior Oncology Strategist, Managed Markets, EVERSANA, and Matthew Pakizegee, Pharm.D., M.S., is Medical, Government Policy Systems (GPS) Associate, Managed Markets, EVERSANA. A leading independent provider of global services to the life science industry, EVERSANA’s integrated solutions are rooted in the patient experience and span all stages of the product lifecycle to deliver long-term, sustainable value for patients, prescribers, channel partners and payers. EVERSANA serves more than 500 organizations, including innovative start-ups and established pharmaceutical companies to advance life science solutions for a healthier world.