November 15, 2018 Sean Skulski

IRP for Medicare? Drastic change to US policy means new mitigation strategies for pharma

PRICENTRIC BRIEF:

  • President Trump suggest the establishment of a formal IRP system to curb rising Medicare costs
  • The CMS proposed an IRP scheme, covering a handful of European countries where target drug prices are collectively 44% lower
  • Additional changes include switching physician reimbursement from a percentage to a flat fee and the allowance of private-sector vendors to negotiate prices to compete for physician and hospital business.
  • EVERSANA can forecast potential price and revenue impact, adjust launch plans, anticipate price drops, and elucidate best mitigating strategies for in-market products and new launches

THE DETAILS

On October 26, 2018, President Trump proposed the creation of a formal international reference pricing (IRP) scheme for Medicare Part B, which covers medical services and supplies that are medically necessary to treat a patient’s condition, whether these pertain to outpatient services, preventative services, ambulance services, or durable medical equipment. The “international pricing index” would set benchmarks when deciding how much to pay for drugs covered by the Medicare Part B plan.

The announcement follows the release of a government study that founds Medicare was paying 80% more than other, similarly-advanced industrial countries pay for costlier physician-administered medicines. The report compares prices charged by drug manufacturers in the US and 16 other countries for 27 of the drugs covered by Medicare Part B. According to the report, “Overall, prices and reimbursement rates for Part B drugs are significantly higher for U.S. providers that purchasers outside the U.S. Medicare could achieve significant savings if prices in the U.S. were similar to those of other large market-based economies.”

Secretary of Health and Human Services Alex M Azar II tweeted, “For the main analysis, we included 27 different drugs. In total, this accounts for $17 billion—a majority of Part B spending on drugs. Among these drugs, on average, the US pays 180% more than the international price. And in some cases, more than 400% the international average.”

The report focused on drug prices in Austria, Belgium, Canada, the Czech Republic, Finland, France, Germany, Greece, Ireland, Italy, Japan, Portugal, Slovakia, Spain, Sweden, and the United Kingdom. Included in the study were major oncology drugs Herceptin, Keytruda, Avastin, and Opdivo, and other well-renowned pharmaceuticals, such as Aranesp, Lucentis, Neulasta, and Rituxan.

In other countries, the government negotiates the cost of drugs with drug manufacturers, but this has not been the case in the US. Drug prices in similar markets are frequently taken into consideration by many foreign countries when deciding upon a price for citizen use – a process known as IRP.

What has been the driving force behind efforts to cut back the cost of drugs has been ever increasing Medicare spending, which has gone up steadily at about 9.5% each year since 2009 (per the Medicare Payment Advisory Committee). Further, two-thirds of Part B drug spending is on biologic drugs, which are costly therapies, and the prices for these treatments have been rising, as biologic therapy trends towards more individualization.

This is a radical departure for US policy, with significant impacts, if the proposed rule or anything similar in structure gets approved.

The IRP Plan

In response, the US Department of Health and Human Services (HHS) proposed the establishment of an international drug price reference or index for some Part B drugs (those for which the US has paid more), changes to physician reimbursement from a percentage to a flat fee, and the allowance of private-sector vendors to negotiate prices to compete for physician and hospital business. The HHS said in a written statement that it is considering issuing a proposed rule in the spring of 2019 with the model launching in 2020 and lasting 5 years.

Instead of using the average sale price (ASP), drug payments would be based on a target price derived from the index of drug prices in other countries. Target prices would be phased in, beginning with an 80% ASP/20% target price blend in Year 1 and by Year 5, 100% of the target price would be used.

The Centers for Medicare & Medicaid Services (CMS) would contract with model vendors that would acquire the drugs, supply hospitals, and physicians, and then bill Medicare. Vendors would be reimbursed based on the international prices. The model would use pricing data from Austria, Belgium, Canada, Czech Republic, Finland, France, Germany, Greece, Ireland, Italy, Japan, Portugal, Slovakia, Spain, Sweden, and the United Kingdom—where target drug prices are collectively 44% lower.

CMS wrote that the countries have “either economies comparable to the United States or they are included in Germany’s market basket for reference pricing for their drug prices, and existing data sources contain pricing information for these countries.”

As officials debate CMS’ plan, EVERSANA believes that no matter the rule, key considerations to understand in negotiating include:

  • What types of rules and rule-criteria are critical to get right so that global launches aren’t slowed and access isn’t curtailed
  • What the impact is regarding the inclusion/exclusion of certain countries in a basket for a single firm, and for the industry
  • How to avoid increasing complexity in the already onerous process of managing and reporting price in the US marketplace
  • What alternate mechanisms might assist US government aims without entering into referencing market mechanisms

EVERSANA and what pharma can do

Both the reduction in Part B drug prices and the elimination of the positive incentive for physicians to overutilize Part B medications means pharma will need to articulate value to providers, patients, and payers to prevent a reduction in volume—especially given decreases in profits because of the reduction in prices and volume. This will also increase the importance of foreign prices.

While the proposed system may ultimately be a negotiating position rather than the likely final rule, pharma still needs to:

  • assess the impact of different potential versions of the rule to best enter negotiations around the proposed rule to avoid “blind negotiations”
  • preserve future options in firms’ pricing decisions today

EVERSANA is now helping companies to manage the key issues raised by this. We are able to:

  • forecast the potential price and revenue impact of the most likely scenarios to be implemented based on discussions to date;
  • adjust launch plans appropriately, as the rule will change traditional launch strategies;
  • anticipate how price drops in the US will affect other markets, such as Japan;
  • and help to elucidate which mitigating strategies would be best, for both in-market products and new launches

EVERSANA uniquely has the people, methods, and tools to assess this impact now, and rapidly developed ready-to-go models and approaches to address a variety of “what-if” scenarios to assist businesses in navigating this potential change. These models are built on our combined decades of experience solving problems in and building tools for global pricing intelligence, price referencing tools, global visibility, US pricing, and product launch expertise put us in a trusted position to advise clients on how to handle this potential change.