To understand how this proposed rule could change the current pricing system, it’s important to know how drugs are paid for through Medicare. Both Medicare Part B and Part D cover prescription drugs, but the difference is that Part D drugs are picked up at the pharmacy or by mail order, and Part B drugs are administered by a doctor in a hospital or clinic. This regulation would only apply to Part B drugs, and unfortunately would have no immediate effect on consumer prices outside of Medicare.
The current pharmaceutical landscape regarding Medicare Part B states that Medicare will pay for the cost of the product plus 6 percent. According to Health Affairs, “critics have said the system creates incentives for doctors to prescribe more expensive therapies, and for drug makers to raise prices.” The proposed rule would change the pricing from the plus 6 percent structure to a flat fee. Similarly, the Obama administration had proposed to move the current pricing system to a plus 2.5 percent plus a flat fee, but that proposal was withdrawn by President Trump.
Another feature of the Trump Administration’s proposed rule is the implementation of the international pricing index in the U.S., which is a system used by several other countries where drug costs are more tightly controlled, including France and Germany. According to a report released by the Department of Health and Human Services (HHS) “prices paid in the U.S. for drugs of Part B were 1.8 times as high as in other countries such as UK, France, and Canada”. The HHS estimates that under the structure suggested in this rule, Medicare would save $17.2 billion over 5 years, starting as early as 2020, and would begin by focusing on drugs that tend to face less competition, such as biologics, and those made by a single drug maker.
This proposed regulation will likely face great opposition from many parts of the healthcare industry, including doctors and pharmaceutical companies. These groups might argue against using foreign price controls, and could say this plan could prohibit citizens from obtaining life-saving medications. This battle has been going on for quite some time, and only time will tell if this rule will make a difference. Stay tuned to future newsletters to find out!
If you would like more information on this topic, please let us know or click here to read more about the Trump Administration's proposed rule.
