NPC Submits Comments on the International Pricing Index Model for Medicare Part B Drugs

December 21, 2018

The Honorable Seema Verma
Administrator
Centers for Medicare & Medicaid Services
Department of Health and Human Services
CMS–5528–ANPRM, P.O. Box 8013,
Baltimore, MD 21244

RE: Medicare Program; International Pricing Index Model for Medicare Part B Drugs

Submitted electronically via: http://www.regulations.gov.

Dear Administrator Verma,

The National Pharmaceutical Council (NPC) appreciates the opportunity to provide comments to the Center for Medicare and Medicaid Services (CMS) on its advance notice of proposed rulemaking (ANPRM) regarding the key design considerations for developing the International Price Index (IPI) Model for Medicare Part B drugs. [1]

NPC is a health policy research organization dedicated to the advancement of good evidence and science, and to fostering an environment in the United States that supports medical innovation. NPC is supported by the major U.S. research-based biopharmaceutical companies. We focus on research development, information dissemination, education and communication of the critical issues of evidence, innovation and the value of medicines for patients. Our research helps inform critical health care policy debates and supports the achievement of the best patient outcomes in the most efficient way possible.

NPC supports the agency’s ongoing interest in transforming the health care system into one that better pays for value. However, as the agency considers new policy solutions to address health care spending and promote value-based payment, it is imperative that these policies do not inadvertently restrict health care innovation or impede patient access to needed health care services and products. In our comments below, we identify critical methodological limitations associated with the IPI Model, which ultimately undermine the agency’s goal of prioritizing value and improved patient outcomes, over utilization and sickness. Given these limitations, NPC does not believe the IPI Model should be among the potential options considered for testing by the agency to “improve quality of care for beneficiaries and reduce expenditures to the Medicare program.”

As a research organization, our comments focus specifically on the methodology underlying the potential IPI Model and do not extend to topics otherwise covered in this ANPRM. Please find our comments on the IPI Model as well as alternative policy options aimed at addressing health care spending and improving value-based payment below.

Methodological limitations associated with the International Pricing Index Model

1) Countries selected for international comparison are not comparable with the U.S.

One of the key components of the potential IPI Model would be to “set the Medicare payment amount for selected Part B drugs to be phased down to more closely align with international prices.” Per the ANPRM, countries that are currently being considered for inclusion in the IPI Model are Austria, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, Netherlands, and the United Kingdom. The agency is “considering including these countries as they are either economies comparable to the U.S. or they are included in Germany’s market basket for reference pricing for their drug prices, and existing data sources contained pricing information for these countries.” [1] However, many of the countries proposed for consideration in the IPI Model do not have comparable economies, nor comparable health care delivery systems to the U.S., as illustrated by the Organisation for Economic Co-operation and Development (OECD) data. [2] For example, 2017 OECD data report that per capita GDP in Greece is less than half (47%) of the per capita GDP in the United States.

In addition to vastly different per capita GDP, countries with more available wealth tend to spend more on health care services and products, further confounding and limiting comparisons of health care spending between the U.S. and other nations. For example, a cross-country comparison of individual factors in the OECD data across 35 high-income countries found total GDP to be highly correlated with the percentage of GDP spent on health care services. [3] Because in the real-world individual variables operate simultaneously, we conducted multivariate analyses to identify the factors associated with higher U.S. spending relative to other countries. In the strongest multivariate model, the driving factors associated with greater percentage of GDP spent on health care were found to be the proportion of the population 80 years and older, the percentage of the population with self-reported bad health, and the amount of wealth (GDP) each country could spend on health care. Countries with more wealth commonly choose to spend these resources on health care. [3,4]

2) The use of international reference pricing will negatively affect incentives for biopharmaceutical innovation.

The U.S. has a market-based health care system and prices are accordingly determined by the market. Conversely, most of the reference countries under consideration are already using external price referencing (EPR) to determine the cost of pharmaceuticals within the European Union. However, a 2015 report published by the European Commission identified several key limitations associated with reference pricing, including barriers to access. [5] The report found that external price referencing “incentivises marketing authorisation holders to launch first in countries with a high medicine price level in order to have the list prices in these countries referenced to by others, and to delay market entry, or not market at all, in low-priced countries in order not to negatively impact the international benchmark. In addition, it may also inhibit manufacturers from offering medicines at lower prices in lower-priced countries. It has been argued that medicine shortages or the discontinuation of medicine supply are partially also attributable to pricing and reimbursement practices such as EPR.” [5]

Furthermore, while the U.S. continues to transition its health system from volume-based to value-based reimbursement, the reference countries under consideration for the IPI Model have not adopted commensurate value-based pricing elements in their pricing and reimbursement decisions. [5] Therefore, linking U.S. prices to countries that do not share the same spending priority of moving toward value-based payment is in direct conflict with the U.S.’s larger health spending priorities and policies.

Reference pricing may also lead to the disassociation between the price of a pharmaceutical treatment and the value it brings to patients. When price is decoupled from the value of a treatment, there are resultant negative implications for innovation. In our study The Cost of U.S. Pharmaceutical Price Reductions: A Financial Simulation Model of R&D Reductions, we used a prospective micro-simulation approach to model how price controls in the U.S. would impact early-stage product development decisions in the pharmaceutical industry. Our simulations found that “cutting pharmaceutical prices significantly (40% to 45%) would have a significant impact on the incentives for private firms to invest in research and development. Specifically, our results suggest that the number of compounds moving from the laboratory into human trials would decrease by 50% to 60%. Because of the uncertainties involved, fewer compounds moving into clinical trials directly translates into fewer new products – the effects of which wouldn’t be fully felt for several decades because of the long development cycle. Moreover, because of the spillover effects of R&D, less activity today reduces the possibilities for new opportunities in the future. Thus, these effects would likely compound themselves over time.” [6]
It is critically important to foster an environment that sustains and enhances innovation to ensure the continued discovery and development of new medicines that improve patients’ health and their quality of life. However, limitations in the proposed IPI Model design may directly negatively impact incentives for biopharmaceutical innovation.

3) Policies aimed at reducing health care spending should apply to all categories of services, not just prescription drugs.

As new policies related to prescription drugs are reviewed and considered through this and other solicitations of public comment, we strongly encourage the agency and other health care stakeholders to broaden the focus from solely one on prescription drug costs to a more holistic consideration of health care costs in general. The IPI Model focuses solely on a narrow subset of prescription drugs without attention to broader cost and value considerations. Rather than focusing on one sector of the health care system, it is important to evaluate cost trends and cost-effectiveness of treatments and services across the health care continuum so that future policies do not disincentivize biopharmaceutical innovation while allowing the utilization of high cost, low value care across the health care system to continue.

Moreover, biopharmaceuticals have played a key role in improving health outcomes, and therefore new health spending policies should reflect the health gains generated from biopharmaceutical innovation. NPC recently published a study on the historical impact of biopharmaceuticals on improved outcomes for patients. [7] Overall, the findings highlight the need to apply value assessment across medical technologies when evaluating return on investment for health care services.

Alternatives to the IPI Model

NPC supports the agency’s interest in exploring new policies aimed at improving the value of health care spending. As Secretary Azar has outlined, “we have been on a journey to replace that equation [paying for procedures and sickness] with a new one – paying for outcomes and wellness – but that transition needs to accelerate dramatically.” [8] Among the four priorities outlined by HHS the common thread “is the recognition that value is not accurately determined by arbitrary authorities or central planners. The best way to identify and reward value is a marketplace of many players—providers, patients, and, where necessary, third-party payers.” [9] The IPI Model as outlined leads us no further on the journey toward value, nor accomplishes the principles of a better market based on competition and choice. Due to the critical limitations associated with the IPI Model cited above, we recommend that future policy and regulatory efforts focus on these goals to gain the greatest value and patient outcomes from drug expenditures in the U.S. To advance these goals, the agency should focus on U.S. market-based approaches to managing prescription drug costs and allow the market to negotiate and determine prices for biopharmaceutical products. We include two examples of market-based approaches below.

Value-based arrangements

Value-based arrangements (VBAs) can enable payers to reduce the risk of exposure to failed outcomes and make prescription medicines more affordable for patients. [10] Previous NPC research highlights that risk-sharing agreements like VBAs “offer a number of potential advantages, including: 1) reducing the risk to payers of making a suboptimal purchase; 2) providing earlier access to medications for patients; 3) creating international pricing efficiency, especially in a world with external reference pricing and parallel trade; and 4) generating evidence on what works in the real world.” [11]

VBAs, unlike the IPI Model, offer a market-based approach to address rising health care costs and improve patient access. However, for VBAs to achieve their full potential, current regulatory barriers associated with the Medicaid best price provision of the Medicaid Drug Rebate Program and the anti-kickback statute (AKS) should be addressed. First, the Medicaid Drug Rebate Program and Average Sales Price in Medicare Part B should be further studied to determine what, if any, changes or clarifications are needed to accommodate value-based contracts in a way that both public and private payers are able to effectively share risk with innovators. Second, to promote the advancement of value-based contracting, the application of the anti-kickback statute to value-based contracts should be clarified in a manner that supports the transition to value-based reimbursement.

Indication Based-Pricing

Under today’s system, most medicines have a single brand, although each medication may treat multiple conditions and provide greater value for one condition over another. For example, TNF inhibitors treat many conditions, including rheumatoid arthritis, Crohn’s disease and ulcerative colitis. The potential value of TNF inhibitor treatment is different for each of these conditions. However, for medications with only one brand this often means that there is one list price for that medicine by unit for all treated conditions; the same price is paid regardless of use. Indication-based pricing is a mechanism whereby the price for a medication varies by condition for which it is used. [10]

Indication-based pricing, unlike the IPI Model, offers a market-based approach to address health care costs and improve patient access. However, broader use of indication-based pricing is hindered by the use of Average Sales Price (ASP) and the Medicaid best price provision. As outlined in our research “removing ASP as a barrier to indication-based contracting provides the opportunity to align medication value with net price, which has the potential to lower costs to the health care system and provide additional access to more effective medicines for patients. An indication-based contracting carve-out for ASP would have to be defined in a way to prevent non-value-based contracts from being included.” [10] As currently envisioned, the IPI Model would reimburse vendors based on international prices and remains agnostic to the indication the treatment is used for and the value associated with multiple indications. [12] This is further complicated if medications have different approved indications across countries included in the IPI Model.

NPC appreciates this opportunity to provide input on the potential International Pricing Index Model. Given the methodological limitations outlined above, the IPI Model does not advance the agency’s goal of prioritizing value and improved patient outcomes, nor does it promote the principles of a better market based on competition and choice. Therefore, NPC does not believe the IPI Model should be among the potential options considered for testing by the agency to “improve quality of care for beneficiaries and reduce expenditures to the Medicare program.” We would be pleased to meet with you to expand upon our comments, share our research, and continue this important discussion.

Respectfully submitted,

Robert W. Dubois, MD, PhD
Chief Science Officer

References

[1] Centers for Medicare & Medicaid Services. (2018). Medicare Program; International Pricing Index Model for Medicare Part B Drugs. Accessed October 30, 2018 from: https://www.federalregister.gov/documents/2018/10/30/2018-23688/medicare-program-international-pricing-index-model-for-medicare-part-b-drug

[2] OECD (2018), Gross domestic product (GDP) (indicator). doi: 10.1787/dc2f7aec-en. Accessed November 27, 2018, from: https://data.oecd.org/gdp/gross-domestic-product-gdp.htm

[3] Greenwald L, Clayton D, Wamble D, Graff J, Dubois R. (2018). How Does the US Compare Against the Rest of the World Regarding GDP Spending on Health Care. Health Affairs. Health Spending: Tackling the Big Issues. February 1, 2018. Washington, DC.

[4] Greenwald L, Graff JS, Wamble D, Clayton D, Dubois RW. (2018). It’s the Chaos, Folks: Why It’s So Hard to Use Comparative Data to Explain What Drives U.S. Health Spending. Final report Manuscript in peer-review.

[5] European Commission. (2015). Study on enhanced cross-country coordination in the area of pharmaceutical product pricing: Final report. Accessed December 3, 2018, from: https://ec.europa.eu/health/sites/health/files/systems_performance_assessment/docs/pharmaproductpricing_frep_en.pdf

[6] Abbott TA, Vernon JA. (2005). The Cost of US Pharmaceutical Price Reductions: A Financial Simulation Model of R&D Reductions.

[7] Wamble DE, Ciarametaro M, Dubois RW. (2018). The Effect of Medical Technology Innovations on Patient Outcomes, 1990-2015: Results of a Physician Survey. J Manag Care Spec Pharm. 21:1-6.

[8] Health and Human Services Secretary Alex Azar “Remarks on Value-Based Transformation to the Federation of American Hospitals,” March 5, 2018. Washington DC. Accessed December 5, 2018 from: https://www.hhs.gov/about/leadership/secretary/speeches/2018-speeches/remarks-on-value-based-transformation-to-the-federation-of-american-hospitals.html

[9] Health and Human Services Secretary Alex Azar “Remarks on Value-Based Transformation for Post-Acute Care,” American Health Care Association/National Center for Assisted Living. June 5, 2018 Accessed December 5, 2018 from: https://www.hhs.gov/about/leadership/secretary/speeches/2018-speeches/remarks-on-value-based-transformation-for-post-acute-care.html

[10] National Pharmaceutical Council. (2018). Regulatory Barriers Impair Alignment of Biopharmaceutical Price and Value. Accessed November 27, 2018, from: http://www.npcnow.org/publication/regulatory-barriers-impair-alignment-biopharmaceutical-price-and-value

[11] Garrison et al. (2015). Private Sector Risk-Sharing Agreements in the United States: Trends, Barriers, and Prospects. Am J Manag Care. 2015;21(9):632-40. November 27, 2018, from: https://www.ajmc.com/journals/issue/2015/2015-vol21-n9/private-sector-risk-sharing-agreements-in-the-united-states-trends-barriers-and-prospects

[12] US Department of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation. (2018). Comparison of U.S. and International Prices for Top Medicare Part B Drugs by Total Expenditures. Accessed December 5, 2018 from: https://aspe.hhs.gov/pdf-report/comparison-us-and-international-pricestop-spending-medicare-part-b-drugs

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