CMS Drug Pricing Proposal Summary

System Selection, Project Management and Process Redesign for a Specialized Pharmaceutical Company

On October 26, 2018, the Centers for Medicare and Medicaid Services (CMS) issued an advance notice of proposed rulemaking (APRM) on a potential model called the International Pricing Index (IPI) Model. The IPI Model is intended to align Medicare payments for most Part B drugs with rates paid by other advanced countries. The proposed IPI Model would take effect in the Spring of 2019 and would operate for five years (until 2025).

Currently, separately payable outpatient drugs in physician offices, outpatient hospital settings as well as other settings are paid at manufacturers’ average sales price (ASP) plus 6%, and are subject to sequestration. Under the IPI Model, CMS is looking to test an alternative payment methodology by allowing private-sector vendors to negotiate prices for drugs and to compete for physician and hospital business.

The IPI Model would include a selected geographic area, and physicians, hospitals and other providers/suppliers would utilize private-sector vendors, while providers in non-model areas would continue to purchase drugs from manufacturers/suppliers. Model participation would be mandatory for designated providers within the selected geographic area. CMS is seeking input on which providers should be included in the IPI Model.

The initial focus of the IPI Model would be single source drugs and biologicals, as they make up the majority of Medicare Part B spending. These drugs are also the most frequently used by physicians that bill under Medicare Part B.

Payments under the IPI Model would be derived from an alternative payment for included drugs. These payments would apply when the ASP is higher than that of the international price. Under the new payment methodology, CMS would pay for drugs based on a “Target Price” from the international price index. CMS anticipates that this will drive down drug prices which will become more in-line with international pricing over the course of the IPI Model. The anticipated savings is projected at 30 percent in total for the selected Medicare Part B drugs.

Through the APRM, CMS is seeking comments and input on the inclusion of provider types, geographic area, as well as other parameters that will have an impact on the implementation of this model.

If you would like to discuss any of these topics further, contact Pamela Cook or your BNN healthcare advisor at 800.244.7444.

Disclaimer of Liability: This publication is intended to provide general information to our clients and friends. It does not constitute accounting, tax, investment, or legal advice; nor is it intended to convey a thorough treatment of the subject matter.

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