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HHS Drug Payment Proposal May Cut Out-of-Pocket Patient Costs

The IPI would help set drug prices lower, helping to reduce out-of-pocket patient costs.

drug price out-of-pocket patient costs

By Sara Heath

- HHS has unveiled the International Pricing Index (IPI), a proposed payment model that would allow Medicare to set drug prices at rates closer to those in other developed nations. This move has the potential to reduce out-of-pocket patient costs.

The IPI model would make it easier for Medicare to pay lower prices, prices closer to those paid in other developed nations, for Medicare Part B drugs. Currently, healthcare providers and payers in other countries are able to negotiate drug prices with pharmaceutical companies in such a way that prices become lower.

This proposed model would use 15 nations as benchmarks drug prices. Those nations will include Austria, Belgium, Canada, the Czech Republic, Finland, France, Germany, Greece, Ireland, Italy, Japan, Portugal, Slovakia, Spain, Sweden, and the United Kingdom.

The proposal would establish third-party vendors that would bear the upfront costs of drugs. These vendors would supply hospitals and physicians with medications, and then apply for Medicare reimbursement.

Because vendors must supply these drugs at a realistic cost for physicians, competition could reduce overall spending. Additionally, vendors would be incentivized to negotiate their own costs to obtain drugs at as low a price as possible.

The model will also eliminate much of the risk physicians bear through the current “buy and bill” model.

Current models are not conducive to achieving lower drug costs that are on par with other developed nations, HHS explained. At present, physicians purchase drugs for patients and apply for Medicare reimbursement at the average cost of that drug. Physicians also receive an “add on” fee that is worth a percentage of the average drug cost.

That add on fee creates incentives for providers to administer higher-cost drugs. And because cost-sharing models make patients responsible for a portion of those costs, patients see higher out-of-pocket bills.

This proposed model would get rid of that add on fee, among other things, making the total patient responsibility lower.

In fact, those benefits to patients are the proposal’s biggest strengths, according to CMS Administrator Seema Verma.

“In an era where the pharmaceutical industry is pricing drugs at levels approaching a million dollars—and jeopardizing the future of our safety net programs—the time has come to fix the perverse incentives in the Medicare program that are fueling price increases,” Verma said in a statement. “I appreciate President Trump and Secretary Azar’s bold leadership to lower seniors’ prescription drug costs and provide relief.”

HHS Secretary Alex Azar agreed, saying that this proposal upends drug payments in a way that will change the healthcare ecosystem.

“President Trump promised that he would bring down drug prices and put American patients first,” Azar explained. “With this innovative approach, he is now proposing historic changes to how Medicare pays for some of the most expensive prescription drugs, securing for the American people a share of the price concessions that drug makers voluntarily give to other countries.”

If approved, the IPI would be phased in over five years and apply to 50 percent of the country. HHS has not yet determined which regions it would pilot the model.

Industry reaction to the proposal is mixed. While some policymakers agree that allowing for more drug pricing negotiation will have positive impacts on patient financial responsibility, other say the proposal could limit patient access to care.

Restructuring of payment models could make it more difficult for patients to obtain chronic care management treatments, according to the American College of Rheumatology. These proposals, among other cost-cutting ideas, could theoretically effective, but neglect to address the issue of access for patients.

“As we have noted with previous proposals, efforts to address high costs can sometimes create significant access issues for patients while penalizing doctors for providing quality care,” the group said in a statement emailed to journalists. “These proposals include those restructuring reimbursement for Medicare Part B drugs through either flat fee payments or a competitive acquisition program, or allowing utilization management such as step therapy or ‘fail first’ protocols in the Medicare Part B program. It is imperative that policymakers stay focused on the players who control drug prices and not penalize Medicare patients who depend on timely access to needed therapies.”

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