The most favored nation model would peg the prices of certain prescription drugs paid for in the … [+]
Buried in the news from last month was an interesting nugget posted by Fierce Pharma: “Following a dinner at Trump’s Mar-a-Lago estate last week, Eli Lilly CEO David Ricks pointed to raising drug prices in other developed nations as a key strategy to reduce costs in the U.S., a potential focus of President-Elect Donald Trump’s administration.”
It seems to hint that international price referencing for certain prescription drugs may be on the table during the second Trump administration. Broadly, this is a system of price controls in which an average or minimum price across a group of countries with similar gross domestic output per capita can serve as an anchor towards which differing prices may converge over time.
During the first Trump administration, the Department of Health and Human Services proposed the introduction of international reference pricing in the Medicare program as a way to reduce drug spending in the United States by benchmarking prices of physician-administered drugs to those in other countries. The administration even floated the idea of expanding the proposed “demonstration project” or experiment in Medicare to include outpatient pharmaceuticals.
To illustrate, currently Medicare reimbursement for physician-administered (Part B) medicines, such as injectables done in the healthcare provider office, is typically based on the average sales price of a given drug plus a 6% mark-up. Under this so-called buy-and-bill mechanism, physicians purchase medications from suppliers and receive reimbursement from third party payers, in this case, Medicare. The 6% add-on payment can be used to cover items such as office overhead.
The ASP is market-based and reflects the weighted average of net sales prices, accounting for rebates and discounts in different domestic markets, with the exception of Medicaid and certain federal programs, such as the Department of Veterans Affairs.
For the suggested international price referencing model, CMS would calculate a weighted (for volume) average for each Part B drug in a set of comparable nations. The resulting ratio of Medicare spending under ASP versus the same expenditures under international prices, holding volume and mix of drugs constant, would represent an International Price Index.
CMS could then establish a target price for each drug by multiplying the IPI by a factor that achieves whatever goal the agency has in mind of more closely aligning Medicare payment with international prices. This could be a 30% reduction in net Medicare spending for the drugs included in the model, as the original IPI proposal incorporated, or a different percentage.
The IPI could also accommodate calculations that include the lowest (rather than average) international price for prescription drugs among a set of comparable nations with at least 60% of the U.S. GDP per capita, as the first Trump administration also proposed in its “Most Favored Nation Model.”
As envisioned by the first Trump administration, a staggered five-year process of gradually pegging prices of physician-administered drugs in Medicare would occur, during which, according to the 2018 White House Blueprint, prices outside the U.S. would rise. The reasoning was that drug makers would attempt to offset losses in the U.S. by increasing prices in international markets.
Fast forward to the discussion at Mar-a-Lago last month among Lilly CEO Ricks and President-elect Trump in which international price referencing was alluded to. There may, however, be some naïveté going on, if the Lilly CEO Ricks and Trump think that countries like the U.K., France and Germany will reverse the long-term trend and raise their drug prices, or permit higher prices to be negotiated. Governments across Europe operate under (severe) budget constraints and are beholden to universal access with minimal out-of-pocket costs for patients. It’s improbable they would allow for it. Constituents (patients) wouldn’t either.
If anything, many European governments believe the prices they pay now for branded drugs are too high and that they often don’t align with value. This helps to explain why European price negotiations center often around value considerations reflected in measures of benefit like the Quality-Adjusted-Life-Year (and associated incremental cost per QALY), cost-effectiveness thresholds above which medical technologies are not considered worth the price, and budget ceilings.
The argument that Ricks put forward—other developed nations will offset decreases in the U.S. by raising their prices—has existed in different iterations for the past 20 to 25. For example, Mark McClellan, who served as both commissioner of the Food and Drug Administration and administrator of CMS under President George W. Bush, attempted to convince European authorities to allow for higher prices 20 years ago with the hope of offsetting U.S. prices. It didn’t happen then. It’s highly unlikely to occur now.
Please rewrite this sentence.
