The most favored nation model would peg the prices of certain prescription drugs paid in the US … [+]
Buried in last month’s news was interesting nugget posted by Fierce Pharma: “After a dinner last week at Trump’s Mar-a-Lago estate, Eli Lilly CEO David Ricks pointed to raising drug prices in other developed countries as a key strategy to lower costs in the U.S., a potential focus of President-elect Donald Trump’s administration.”
It seems to indicate that international price reference because certain prescription drugs may be on the table during the second Trump administration. Broadly speaking, this is a system of price controls in which an average or minimum price for a group of countries with similar gross domestic production per capita can serve as an anchor towards which different prices can converge over time.
During the first Trump administration, the Department of Health and Human Services suggested the introduction of international reference pricing into the Medicare program as a way to reduce drug spending in the United States by comparing the prices of physician-administered drugs with those in other countries. The administration even floated the idea of expanding the proposed “demonstration project” or experiment in Medicare to include outpatient drugs.
To illustrate, Medicare reimbursement for physician-administered drugs (Part B), such as injectables administered in the health care provider’s office, is currently typically based on the average retail price of a given drug plus a 6% markup. In this so-called buy-and-bill mechanism, physicians purchase medications from suppliers and receive reimbursement from third-party payers, in this case Medicare. The additional payment of 6% can be used to cover office costs, for example.
The ASP is market-based and reflects the weighted average of net sales prices, taking into account rebates and rebates in various domestic markets, excluding Medicaid and certain federal programs, such as the Department of Veterans Affairs.
For the proposed international price reference model, CMS would calculate a weighted (by volume) average for each Part B drug in a set of comparable countries. The resulting ratio of Medicare expenditures under ASP to the same expenditures under international prices, holding the volume and mix of drugs constant, would represent an international price index.
CMS could then set a target price for each drug by multiplying the IPI by a factor that achieves the agency’s goal of more closely aligning Medicare payments with international prices. This could be a 30% reduction in net Medicare spending for the drugs included in the model, as was included in the original IPI proposal, or some other percentage.
The IPI could also incorporate calculations that include the lowest (rather than average) international prescription drug price among a set of comparable countries with at least 60% of US GDP per capita, such as the first Trump administration also suggested in her “Most favored nation model.”
As envisioned by the first Trump administration, there would be a staggered, five-year process of gradually linking physician-administered drug prices to Medicare, with prices increasing outside the US, according to the 2018 White House Blueprint. The reasoning was that drug makers would try to offset losses in the US by raising prices in international markets.
Fast forward to the discussion at Mar-a-Lago last month between Lilly CEO Ricks and President-elect Trump, in which international price references were alluded to. However, there may be some naivete if Lilly CEO Ricks and Trump think that countries like Britain, France and Germany will reverse the long-term trend and increase their drug pricesor allow higher prices to be negotiated. Governments across Europe operate under (severe) budgetary constraints and are required to provide universal access with minimal out-of-pocket costs for patients. It’s unlikely they would allow this. The voters (patients) wouldn’t do that either.
In any case, many European governments believe that the prices they now pay for branded medicines are too high and often do not reflect their value. This helps explain why European price negotiations often revolve around value considerations reflected in measures of benefit such as quality-adjusted life year (and associated incremental costs per QALY), cost-effectiveness thresholds above which medical technologies are not considered worth the price. and budget ceilings.
The argument Ricks made — other developed countries will offset U.S. declines by raising their prices — has had several iterations over the past 20 to 25 years. Mark McClellan, who served as commissioner of the Food and Drug Administration and administrator of CMS under President George W. Bush, tried two decades ago to convince European authorities to allow higher prices in the hope of offsetting U.S. prices . Then it didn’t happen. It is very unlikely that this will happen now.