Seema Verma: October 26, 2018

HHS Advances Payment Model to Lower Drug Costs for Patients

The International Pricing Index (IPI) Model would lower costs for physician-administered drugs by resetting Medicare payments based on international prices and introducing competition

Seema Verma

Administrator for the Centers for Medicare and Medicaid Services ­­­­­­­­­­­­­­

 

President Trump proposed on Thursday that Medicare pay for certain prescription drugs based on the prices paid in other advanced industrial countries — a huge change that would save money for the government and for millions of Medicare beneficiaries.

As part of a demonstration project covering half the country, Medicare would establish an “international pricing index” and use it as a benchmark in deciding how much to pay for drugs covered by Part B of Medicare.

Today the U.S. Department of Health and Human Services, through the Centers for Medicare & Medicaid Services (CMS), announced and sought input on a new “International Pricing Index” (IPI) payment model to reduce what Americans pay for prescription drugs.

Under the IPI model, described in an Advance Notice of Proposed Rulemaking (ANPRM), Medicare’s payments for select physician-administered drugs would shift to a level more closely aligned with prices in other countries. Overall savings for American taxpayers and patients are projected to total $17.2 billion over five years.

“President Trump promised that he would bring down drug prices and put American patients first,” said HHS Secretary Alex Azar. “With this innovative approach, he is now proposing historic changes to how Medicare pays for some of the most expensive prescription drugs, securing for the American people a share of the price concessions that drug makers voluntarily give to other countries.”

“In an era where the pharmaceutical industry is pricing drugs at levels approaching a million dollars—and jeopardizing the future of our safety net programs—the time has come to fix the perverse incentives in the Medicare program that are fueling price increases,” said CMS Administrator Seema Verma. “I appreciate President Trump and Secretary Azar’s bold leadership to lower seniors’ prescription drug costs and provide relief.”

The move from current payment levels to payment levels based on international prices would be phased in over a five-year period, would apply to 50 percent of the country, and would cover most drugs in Medicare Part B, which includes physician-administered medicines such as infusions. The model would correct existing incentives to prescribe higher-priced drugs and, for the first time, address disparities in prices between the United States and other countries. Since patient cost sharing is calculated based on Medicare’s payment amount, patients would see lower costs under the model.

Physicians currently purchase the drugs that they administer to patients and receive payment from Medicare for those drugs at an amount equal to the average sales price plus an “add-on” fee. The add-on is calculated as a percentage of the average sales price of the drug.

This creates several problems. First, the dollar amount of the add-on increases with the price of the drug, which encourages prescribing higher-cost drugs. Second, Medicare accepts sales prices for Part B drugs, with no negotiation. Together, this results in higher out-of-pocket costs that burden American seniors.

MORE ABOUT SEEMA VERMA: 

As Administrator of CMS, Ms. Verma oversees one of the largest federal agencies that administers vital healthcare programs to over 100 million Americans. Before becoming CMS Administrator, she was the President, CEO and founder of SVC, Inc., a national health policy consulting company. For over 20 years, Ms. Verma has worked extensively on a variety of policy and strategic projects involving Medicaid, insurance, and public health, working with Governor’s offices, State Medicaid agencies, State Health Departments, State Departments of Insurance, as well as the federal government, private companies and foundations.

Ms. Verma has extensive experience redesigning Medicaid programs in several states. Ms. Verma is the architect the Healthy Indiana Plan (HIP), the Nation’s first consumer-directed Medicaid program under Governor Mitch Daniels of Indiana and Governor Pence’s HIP 2.0 waiver proposal. Ms. Verma has supported Indiana through development of the historic program since its inception in 2007, from development of the enabling legislation, negotiating the financing plan with the State’s hospital association, developing the federal waiver, supporting federal negotiations and leading the implementation of the program, including the operational design.

Ms. Verma received her Master’s degree in Public Health with concentration in health policy and management from Johns Hopkins University and her Bachelor’s degree in Life Sciences from the University of Maryland.

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