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November 8, 2018

CMS released an advanced notice of proposed rulemaking—with the spring of 2019 targeted for a proposed rule—describing changes to the way Medicare pays for some drugs administered by doctors. The plan envisions an international price index payment model, which the Administration says will help reduce the cost for some of the most expensive drugs in Medicare Part B, like cancer and immune system medications, and better align Medicare’s prices with prices in other countries.

The Council Perspective: In 2016, Medicare spent $28 billion on Medicare Part B drugs – a 59% increase since 2011. The CMS hopes to reduce drug spending by about $17.2 billion over the next five years by linking the prices Medicare pays for certain drugs to the international pricing index, which establishes a “target price” for a drug based on its average price across other countries.

As a result, the CMS contends that Medicare beneficiaries would see lower cost sharing under the proposed model. In addition, to address current incentives for doctors to prescribe more expensive drugs, the proposal would no longer tie physician and hospital reimbursements to the price of drugs and would instead move to a set payment amount for drug storage and handling.

Skeptics question whether the proposal will address the root causes of high drug prices and suggest that easing regulatory and patent-related hurdles – which keep biosimilar and generic drugs off the U.S. market – would better address the complexity and rigidity of the pharmaceutical system as a whole.