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The Trump administration could move forward with a policy that ties Medicare payments for outpatient drugs to foreign prices by upending the buy-and-bill payment system, according to the administration’s draft plan.
President Donald Trump on Sunday signed an executive order calling for the HHS secretary to implement a rulemaking plan to tie Medicare outpatient drug payment to international prices. If the administration chooses to move forward with the regulatory process in an expedited manner before the November election, providers could be faced with implementation challenges.
The administration’s draft plan for a Center for Medicare and Medicaid Innovation demonstration, which was released in October 2018, would set Medicare Part B reimbursement based in part on drug prices paid in other countries. But the draft policy would only work if entities step up to fill a new middleman role to take on the financial risk of buying Part B drugs from manufacturers and selling them to providers. Provider participation in the demonstration as drafted would be mandatory, and cover 50% of Medicare Part B spending.
Sunday’s executive order said the White House plans to shift to a more aggressive most-favored-nation policy where Medicare would pay the lowest price offered in countries with comparable economies, and it could also change its plan to revolutionize the buy-and-bill system in a final rule.
The Obama administration tried to implement a similar plan to introduce middlemen into Medicare Part B, but the Competitive Acquisition Program failed. The Trump administration’s advance notice of proposed rulemaking left many questions unanswered about how incentives would be different for potential vendors, which could include group purchasing organizations, distributors, wholesalers, specialty pharmacies, manufacturers and individual or groups of physicians and hospitals.
Two unanswered questions about the vendor model would be how participating providers would be chosen and why vendors would take on the financial risk of participation, said Rachel Sachs, associate professor of law at Washington University in St. Louis.
Sachs said a new system would likely take time to implement. “The model relies for implementation on recruiting these private vendors and having them set up the necessary kinds of business arrangements they would need to implement this proposal,” Sachs said.
If the administration were moving at top speed, it could try to release a final rule on outpatient drug reimbursement before the 2020 election. Drugmakers have indicated they may sue to stop implementation, which could slow down the process.
Dr. Peter Bach, the director of Memorial Sloan Kettering’s Center for Health Policy and Outcomes, said a vendor program has better odds of working in a demonstration like the Trump administration’s draft plan because the financial stakes are much higher in Medicare Part B than they were in the mid-2000s, and the draft demonstration would make provider participation mandatory. The administration’s draft plan also appears to be limited to a few high-cost drugs, which could make it easier to implement.
Adam Finkelstein, counsel at Manatt Health and former health insurance specialist at CMMI, said the administration is not legally required to issue a proposed rule before a final rule on its Part B policy. The speed of the regulatory process likely depends on how the Trump campaign intends to use the policy for political messaging considerations ahead of the election. The more quickly the adminstration moves ahead, Finkelstein said, it leaves the administration more vulnerable to legal challenges.
“They have a couple of pathways, and not all are guaranteed to work,” Finkelstein said.
Additionally, the Congressional Review Act requires a 60-day delay in the effective date for major rules, though that requirement can be waived in cases of the public interest, Finkelstein said.
The draft plan also proposes changing provider reimbursement for outpatient drugs from the current system that pays providers a percentage of the drug’s Average Sales Price to a flat fee. CMS said in the draft plan that the goal for the new payments would be to hold providers harmless to current revenue “to the greatest extent possible.” However, it’s possible that such a policy could affect various providers differently.
There are also practical considerations that could make a quick turnaround challenging, as providers already have a stock of the drugs on hand, Bach said. Jillanne Schulte Wall, American Society of Health-System Pharmacists senior director of health and regulatory policy, also voiced concern about the liability for hospitals if they don’t own the drugs they are providing, and compliance with drug supply chain documentation requirements.
If HHS decides to cut the vendor system from a final rule, it could leave hospitals to absorb the reduction in reimbursement.
“There is some wiggle room for a reduction in reimbursement, but that would (be) calamitous. It wouldn’t go forward,” Bach said.
A proposed rule on the administration’s outpatient drug policy has been under review at the White House budget office since June 2019. Trump’s executive order also called for tying Medicare Part D payments to foreign prices, but is unclear exactly how the administration could move forward with that policy.
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