President Announces Plan to Tie Drug Prices to Prices Paid In Other Industrialized Countries — Will it Work?

President Announces Plan to Tie Drug Prices to Prices Paid In Other Industrialized Countries — Will it Work?

By Mary Johnson, editor

President Trump recently announced a new proposal to bring down the cost of certain expensive Part B prescription drugs.  The plan is meeting with skepticism from leading health policy experts, not to mention hot opposition from the deep-pocketed pharmaceutical lobby.  President Trump proposed a new payment system for prescription drugs that are administered in a doctor’s office, such as injectable treatments for arthritis and cancer.  Medicare would establish a new “international pricing index” based on prices more comparable to those paid in 16 other industrial nations, like Canada, the United Kingdom, and Germany, where drug prices are much lower.

The announcement came a few hours after the Department of Health and Human Services released a study that found Medicare was paying 80% more for prescription drugs than other advanced industrial countries.  Medicare beneficiaries (or their supplemental plan) are responsible for 20% of the cost of Part B drugs, and high costs of prescription drugs in both Part B and Part D pose a serious threat to retirement savings.

Trump’s proposal, however, is estimated to reduce U.S. spending on Part B drugs by just $17.2 billion over 5 years, a fraction of the $19 billion that is spent on Part B drugs annually.  Medicare beneficiaries would not see any immediate savings impact.  The proposal would only affect the cost of Part B drugs and, would not apply to the cost of Part D drugs that Medicare beneficiaries purchase at the pharmacy.

The proposal also would not start until at least 2020, and because it is a demonstration projection, would impact just half of the country.  It would take up to five years to fully scale in and realize most of the projected savings.  Once fully phased in, lower Medicare Part B drug prices are expected to translate into significant savings for older Americans receiving medicines by infusion (IV).

TSCL believes that our nation needs to change how it pays for Part B drugs.  Under the current system, Medicare reimburses doctors 106% of the average selling price of the drug — a price that is set by the drug manufacturer.  It is little wonder that critics of this system point out that doctors have an incentive to prescribe the most expensive drugs, since doctors keep the extra 6% of the cost of the drug.

The proposal to use an international pricing index is not without merit.  This type of “reference pricing” is successfully used to negotiate drug prices in other nations where drug prices are much lower.  If international index pricing would be adopted, the greatest potential savings would be in reducing prices not only for Part B but also at the pharmacy counter, for Part D.

Experts have raised concerns that the plan might run into roadblocks.  Douglas Holtz-Eakin, a former director of the Congressional Budget Office, warned that the drug industry might opt to push higher costs onto private U.S. health insurers in order to compensate for lower Medicare reimbursements.  Thus, adopting the system of international pricing would need to include Part D as well as Part B, to prevent drug manufacturers from shifting higher costs to Part D.

Should Medicare tie the cost of Part B drugs to the cost of drugs in nations where the price is much lower?  We list three proposed methods that Medicare could use to negotiate drug prices.  Take our 2019 Senior Survey and tell us what you think!