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HHS Secretary Alex Azar, once a pharmaceutical company executive, believes his former colleagues can easily make up the loss President Trump's new drug pricing proposal would create. If not, they may need to make personnel changes, he suggested.

An advanced notice of proposed rulemaking  released Oct. 25 by CMS seeks to test whether using a combination of three approaches – an international drug price reference standard for some Part B drugs, a change in physician reimbursement from a percentage to a flat fee, and allowing private-sector vendors to negotiate prices and compete for physician and hospital business – would "lead to higher quality of care for beneficiaries and reduced expenditures to the Medicare program."

CMS' Center for Medicare and Medicaid Innovation (CMMI) would run the program, which would apply only to selected geographic areas. Fifty percent of Medicare Part B spending is expected to be included in the model, should it be implemented. The notice solicits public comment on the proposal. HHS said in a written statement that it is considering issuing a proposed rule in the spring of 2019 with the model launching a year later and lasting five years.

Shortly after President Trump announced the plan, industry groups panned it as potentially restricting access and tantamount to foreign price controls.

HHS Secretary Alex Azar offered a quick response to the industry critique in a surprise appearance at the Biotechnology Innovation Organization's Patient and Health Advocacy Summit. Azar said it would be "mathematically impossible" for industry research and development spending to be dramatically affected and that over the life of the model, Medicare would go from paying 180% of what other countries pay to 126%.

"So contrary to any fearmongering you may hear about undercutting innovation, we are not even going to go as low as what our wealthy peers pay," he said.

Azar said at most 1% of annual R&D spending collectively would be lost, and if companies could not recover that amount negotiating higher prices in Europe and Japan, "they need new people doing the negotiations."

“I assure you, if I believed this proposal would meaningfully affect incentives for producing new cures… I would not be standing here in front of you today telling you about this proposal,” Azar told the conference.

US Prices Would Move Toward International Index

The HHS International Price Index (IPI) Model initially would focus on single-source drugs, biologics, and biosimilars in Part B that account for a "high percentage" of use and spending, according to the notice of proposed rulemaking. Instead of using the average sale price, 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 one. By year five, 100% of the target price would be used.

CMS would contract with model vendors that would acquire the drugs and 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, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, Netherlands, and the UK. CMS wrote the countries are "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."

HHS estimated using the target price instead of ASP would save 30% in total spending for the drugs in the model.

HHS' Office of the Assistant Secretary for Planning and Evaluation issued a report prior to Trump's speech that said Medicare pays on nearly twice as much as other countries pay for the same drugs. ASPE considered a basket of 27 medicines available in multiple countries and estimated that Medicare spends an additional $8.1bn more on the products than if they had been scaled by international price ratios.

In addition, rather than a percentage add-on payment based on the price paid, under the model physicians would receive a fixed add-on payment that is intended to remove the incentive to prescribe high-cost drugs.

Indeed, the proposal appears to be bold and far-reaching. Matt Brow, president of Avalere Health, said in an interview with the Pink Sheet that it would be "extraordinarily disruptive" if implemented.

"It is indicative of their intent to take meaningful and sweeping action here," Brow said. "It does not feel like a piddling around the edges proposal. That will make it difficult to get done, but it is a meaningful aspiration to change the environment."

The model is similar to one proposed in 2016 by the Obama Administration that never gained traction, in part because of widespread opposition. That proposal included reference pricing, discounting or eliminating coinsurance payments, and outcomes-based risk-sharing arrangements for certain Part B categories. (Also see "Medicare Value-Pricing Options Vary Widely In Part B Payment Experiment" - Pink Sheet, 14 Mar, 2016.)

Trump Relates America First Policies

In a speech at HHS headquarters announcing the proposal, Trump focused on the perceived unfair prices American patients pay for drugs compared to other countries. He called it "global freeloading that forces American consumers to subsidize lower prices in foreign countries through higher prices in our country."

"At long last the drug companies in foreign countries will be held accountable for how they rigged the system against American consumers," Trump said. "This is not a change for industry or companies or pharma. This is a change for the people."

Trump also lamented that US patients pay the bulk of global research and development costs, saying "the world reaps the benefits of American genius and innovation while American citizens, and especially our great seniors, who are hit the hardest, pick up the tab."

Trump's statement is interesting because it bemoans the socialist health care systems that are negotiating lower prices for drugs, while at the same time his proposal seeks to capitalize on the power single-payer purchasing wields.

This new proposal is the latest of several administration moves intent on lowering drug prices. CMS also recently issued a proposed rule requiring drug companies to place the list price of their products in direct-to-consumer television ads (Also see "US Drug Pricing: CMS Seeks Feedback On DTC Ad Enforcement Mechanism, Disclosure Statement" - Pink Sheet, 21 Oct, 2018.), and there have been hints that rebate reform is upcoming. (Also see "HHS Secretary Alex Azar Talks Rebate Changes, But Not Eliminating Discounts Altogether" - Pink Sheet, 13 Sep, 2018.)

FDA has been working to encourage development and approve more generic drugs to create competition and pricing pressure. (Also see "US FDA Sets Generic Approval Record, But Generic Sponsors Aren't Celebrating" - Pink Sheet, 12 Oct, 2018.)

Drug Industry Opposes Proposal; PBMs Encouraged

It appears that the industry reaction to Trump's proposal is much the same as the Obama proposal.

BIO President and CEO Jim Greenwood in a statement called the proposal "foreign price controls on American innovation," and said it would put "America's patients last." He also said the proposal "continues a troubling trend towards undermining" Part B.

"Contrary to the president’s repeated promises to end ‘foreign free-loading,’ this proposal embraces it and exacerbates its harmful effects," Greenwood said. "By adopting foreign price controls on the very small number of innovative medicines that make it to market, this proposal will severely chill investment in new cures and therapies for America’s seniors."

Stephen Ubl, president and CEO of the Pharmaceutical Research and Manufacturers of America, employed similar rhetoric, saying the administration wants to impose "foreign price controls from countries with socialized health care systems that deny their citizens access and discourage innovation."

Ubl also suggested the US market already includes a price containment mechanism.

"The United States has a competitive marketplace that controls costs and provides patients with access to innovative medicines far earlier than in countries with price controls, and it’s why we lead the world in drug discovery and development," he said in a written statement. "We oppose changes to Medicare that threaten patient access to innovative, lifesaving medicines and are disappointed the administration put the needs of patients aside with these proposals."

Pharmaceutical Care Management Association President and CEO J.C. Scott said in a statement that the group was "encouraged the administration is exploring greater use of competitive pharmacy benefit manager tools" in Part B.

PBMs have been cast as a primary driver of high drug prices in the ongoing pricing debate. (Also see "PBMs Play Outsized Role … In Hearing On Health Sector Consolidation" - Pink Sheet, 5 Mar, 2018.)

The Association for Accessible Medicines and Biosimilars Forum, trade associations touting lower-cost alternatives to novel drugs, did not praise the proposal directly, but said they looked forward to working with the administration to get more generics and biosimilars to the market.

Are Congressional Leaders Willing To Consider Proposal Now?

CMS believes it has the authority to implement the proposals with its existing authority, but Congressional reaction will still be a critical factor in how the plan goes forward. Reps. Greg Walden, R-Ore., and Kevin Brady, R-Texas, who chair the House Energy and Commerce and Ways and Means committees respectively, also did not offer overwhelming support for the plan, but also were not overly negative.

"We commend the president for remaining steadfast in his commitment and appreciate Secretary of Health and Human Services Azar’s efforts to encourage lower drug costs for patients," Walden and Brady said in a joint statement. "We will continue working with President Trump and his administration to make good on his promise to the American people and will continue the Energy and Commerce Committee’s and Ways and Means Committee’s efforts to create an affordable and competitive marketplace for prescription drugs, while maintaining our nation’s leadership role in medical innovation and ensuring patient access to new, lifesaving therapies."

When Obama's CMS issued its proposal in 2016, Brady, Rep. Fred Upton, R-Mich., who chaired the Energy and Commerce Committee at the time, and Senate Finance Committee Chairman Orrin Hatch, R-Utah, issued a joint statement criticizing the idea as being hatched behind closed doors by unelected bureaucrats. (Also see "CMS Payment Experiment Strains Legal Powers, Reimbursement Norms" - Pink Sheet, 14 Mar, 2016.)

Michael Cipriano contributed to this report.

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