Since unveiling a policy blueprint in May, the Trump administration has begun to take more concrete steps to make good on its promises to bring down drug prices in the U.S.
Thursday’s proposal follows close on the heels of a plan unveiled earlier this month to require drugmakers list prices in TV advertisements for their products.
Both ideas aren’t likely to move prices materially lower in the near-term, but come weeks ahead of crucial midterm elections in which healthcare issues figure to play a large role.
“This proposal probably amounts to a mixture of a serious substantial proposal to lower Medicare drug spending, and introduce pricing parity, and a pre-election trial balloon to get credit for tackling industry pricing,” wrote Leerink analyst Geoffrey Porges in a Oct. 25 note.
There are several parts to the proposed pilot program, which is in the very earliest stages of the rulemaking process. Broadly, HHS would seek to bring Medicare Part B drug payments lower in a series of phases designed to more closely align prices in the U.S. relative to other countries.
Earlier Thursday, HHS issued new research which found prices charged by drugmakers in the U.S. are nearly twice as high as prices averaged across a basket of 16 foreign countries, including France, Germany, the U.K. and Japan.
“For decades, other countries have rigged the system so that American patients are charged much more ... for the exact same drug,” Trump said Thursday, calling out several branded drugs in particular.
Under the preliminary outline of the plan, HHS would create a pilot covering roughly 50% of Part B spending, establishing a competitive acquisition program where vendors would negotiate drug prices and compete for physicians and hospitals’ business.
Medicare would then pay those vendors for drugs included in the program based on a formula that’s designed to approximate a composite of international prices from 16 countries. The formula would phase in over five years, blending in the newly calculated prices with the existing U.S. model.
HHS estimates such an approach could save up as much as $17.2 billion over the course of the plan.
Currently, doctors and hospitals are reimbursed for already purchased Part B drugs through a formula that pays a drug’s average sales plus 6%.
In its proposal, HHS argued this practice fails to correctly incentivize providers to seek out lower-cost drugs and avoid unnecessary prescribing. The plan would change provider reimbursement to a flat rate delinked from the drug’s price.
Drug spending in Medicare Part B accounted for roughly 8% of overall drug expenditures in 2016, according to data from CMS.
Certain drugmakers, though, are more exposed to changes in Part B reimbursement. Sales of Amgen drugs through Part B, for example totaled about $3.7 billion in 2016 — or about a fifth of the biotech’s overall 2016 revenue of $17.5 billion.
Regeneron, which makes the blockbuster eye drug Eylea (aflibercept), earned a full two-thirds of its revenue through Part B sales, figures from the investment firm Leerink show.
Unsurprisingly, drug industry lobby groups criticized the administration’s plan, deriding the proposal as a de facto imposition of “foreign price controls.”
PhRMA returned to arguments made in the past, claiming that linking prices in the U.S. to those abroad would weigh on innovation.
Senate health committee Chairman Lamar Alexander, R-Tenn., said he welcomes the effort to reduce drug costs.
"I am encouraged to see President Trump take another step to lower prescription drug prices by aligning prices paid in our country for certain Medicare drugs with the prices paid in other advanced industrialized countries,” Alexander said in a statement.
House Energy & Commerce Ranking Member Frank Pallone, D-N.J., raised concerns the Trump proposal could potentially increase costs for seniors and limit access to drugs, but praised the administration for tacking drug pricing.
But Allan Coukell, senior director of health programs at The Pew Charitable Trusts said that while it is unclear if physician reimbursement will ultimately go up or down, the out-of-pocket share of costs for patients should go down as CMS reimbursement for drugs decreases.
Drugmakers on the other hand could be facing increasing pressure given the role vendors could take in a Part B space that historically has not seen utilization management or negotiation, according to Coukell.
“This puts an entity in the middle of the Part B program that is trying to negotiations for Part B drugs,” Coukell said. “But it is not totally clear from what they put out today how much leverage these entities would have to create formularies or exclude drugs from coverage, which would give the vendor more leverage in negotiations.”
CMS will collect comments on the Advanced Notice of Proposed Rulemaking for 60 days, with comments due on Dec. 24, 2018. HHS said it intends to publish a proposed rule in spring 2019.