The Centers for Medicare & Medicaid Services (CMS) released an advanced notice of proposed rulemaking on October 25, 2018, seeking to test whether using a combination of 3 approaches—an international drug price reference standard for some Part B drugs, a change in physician reimbursement from a percentage to a flat fee, and allowing private-sector vendors to negotiate prices and compete for physician and hospital business—may lead to better health care at lower cost to the Medicare program. Such a proposal, if enacted, would have far-reaching implications for clinical pathways developers and in terms of access to treatments.
As health care shifts to a focus on value-based outcomes, there is a need for all stakeholders to deliver on both clinical and financial outcomes. This means that clinical pathways must take into account the financial aspects of treatments. The drug landscape is rapidly changing, especially for Medicare Part B medications, for which the focus is on increasing value—particularly through affecting price reductions. Although many have speculated about how the Trump administration would decrease the prices of these drugs, few predicted it would involve Medicare’s use of referencing prices from other countries and a shift away from average sales price (ASP). At the end of October, President Trump and the US Department of Health and Human Services (HHS) proposed a plan to establish an international drug price reference index for some Part B drugs, as well as a flat fee for physician-administered products rather than a percentage of ASP.1 This proposal could have a deep impact on clinical pathway organizations if it is adopted, which could be as early as Spring 2019. Specific areas of impact may include which agents are preferred on a clinical pathway and a potential expansion of targeted treatment groups and time periods as a result of lower drug prices. In this article, we discuss the implications of this proposal for the US health care system, particularly in the context of treatment access and pathways development.
International reference pricing is a price control mechanism to determine a list price in a country based on the price of the same product in other countries. Health authorities in specific countries use several different methods to operationalize reference pricing, including varying sizes and compositions of indexes and the use of “reference baskets,” and they employ different algorithms to determine reference price.2 The HHS plan would phase in reference pricing by using target prices over 5 years. The first year would require an 80% ASP/20% target price blend. By Year 5, 100% of the target price would be used.3
Countries in the European Union (EU) have used reference pricing for years to benchmark other countries when a drug launches or, periodically, after launch. This has created an interdependence among EU countries for the pricing of new drugs, causing a domino effect when prices in one country change. Many experts recognize that this interdependence gives pharmaceutical firms an incentive to launch new drugs in high-price countries first and to delay launches—or even skip launches altogether—in countries with lower prices. Pharmaceutical manufacturers traditionally launch products in the United States first because of free pricing and a lack of formal health technology assessments compared with the EU. As a result, the rest of the world has reduced access to life-saving medicines. Out of 74 cancer drugs launched between 2011 and 2018, 70 (95%) are available in the United States compared with 74% in the United Kingdom, 49% in Japan, and 8% in Greece.4
A transition away from free drug pricing in the United States to a system of prices negotiated by health authorities in other countries that employ direct price control will have tremendous effects on the markets in which pharmaceutical firms decide to launch their products. Health authorities that demand large discounts may be excluded from the launch sequence or may deny patients access to medications rather than pay higher prices.
Clinical pathway organizations will play a big role in determining proper treatment placement of new innovative therapies like RNA-based, chimeric antigen receptor (CAR) T-cell therapy, and other cell therapies on the horizon. Most of these therapies will be approved in the United States before they are approved in other countries. Clinical pathway organization should strive to maintain the higher quality of care demonstrated by higher cancer survival rates in the United States vs the EU. About 261 per 100,000 people die from cancer each year in the EU compared with 164 per 100,000 in the United States.5,6 Some manufacturers may not agree to negotiated lower prices with Medicare based on reference prices, leading to access issues for patients. Clinical pathways will be affected because these negotiations could delay access to medications that providers prescribe to their patients based on clinical pathways.
Shift Away From ASP
The 2003 Medicare Prescription Drug, Improvement, and Modernization Act introduced ASP as the basis for payment for most drugs covered under Medicare Part B.7 ASP is based on manufacturer-reported actual selling price data and includes the majority of rebates, volume discounts, and other price concessions offered to all classes of trade (excluded from the calculation of ASP are all sales that are exempt from “best price” and sales at “nominal price”). ASP prices are based on manufacturer-submitted data in 2-quarter increments, and do not include subsequent pricing changes. ASP is a volume-weighted average, meaning that some providers are able to obtain pharmaceuticals below ASP, whereas others are able to purchase the drugs only at a price that is above the average. From a clinical pathways perspective, ASP can also create misaligned incentives to dispense higher-cost drugs due to a 6% markup in Medicare Part B.
In the new proposal, the current price of ASP + 6% would be changed to a fixed fee for storage and handling that is not tied to the price of the drug, removing the incentive to prescribe higher-cost drugs. CMS is seeking input on several options, including an add-on amount per encounter or per month for an administered drug and a unique set payment amount for each class of drugs, physician specialty, or physician practice (or hospital).8 This clears the way for clinical pathway implementation in settings that are accustomed to buy-and-bill. Clinical pathways may face transparency issues, however, because CMS publishes ASP data, and there is no clarity on transparency from potential vendors.
Vendors Negotiating Prices
Historically, Medicare has not been able to negotiate prices directly with pharmaceutical manufacturers. To overcome this barrier, the administration has a plan that would allow vendors to negotiate with manufacturers; instead of physicians and outpatient providers purchasing Part B drugs, private-sector vendors would negotiate prices with the drug manufacturer, acquire the drugs, distribute them to physicians and hospitals, and take on the responsibility of billing Medicare.
CMS is seeking input on whether group purchasing organizations; wholesalers; distributors; specialty pharmacies; Part D sponsors; and, potentially, individual physicians or physician groups, hospitals, and/or manufacturers could play the vendor role.8 The ultimate decision CMS makes on who can and cannot be considered a vendor will determine cost transparency and whether organizations can rely on drug costs as input when developing clinical pathways. The vendor organization may have transparency issues similar to pharmacy benefits managers or they may be required to submit negotiated rates similar to ASP.
There will be a substantial impact on clinical pathways if reference pricing, flat fees for drug administration, and changes in who may be considered a vendor are adopted next year. Many established pathways would require revision because of dramatic changes in prices for specific Medicare Part B medications. This would result in clinical pathways with potentially different preferred agents, as well as changes to who may receive a treatment and when treatments can be used. With changes to the “which,” “who,” and “when” being impacted as a result of changes in drug pricing, the drive to value-based clinical care through improved clinical and financial outcomes will become even more complex for clinical pathways.
1. US Department of Health and Human Services (HHS). HHS advanced payment model to lower drug costs for patients [press release]. October 25, 2018. https://www.hhs.gov/about/news/2018/10/25/hhs-advances-payment-model-to-lower-drug-costs-for-patients.html. Accessed November 30, 2018.
2. Ruggeri K, Nolte E. Pharmaceutical Pricing: The Use of External Reference Pricing. Santa Monica, CA: RAND Corporation; 2013. https://www.rand.org/content/dam/rand/pubs/research_reports/RR200/RR240/RAND_RR240.pdf. Accessed November 30, 2018.
3. Gingery D. Medicare’s foreign price bench-marking will only hurt bad negotiators, HHH’s Azar argues. Pharma Intelligence website. https://pharmaintelligence.informa.com/resources/product-content/medicares-foreign-price-bench-marking-will-only-hurt-bad-negotiators-hhhs-azar-argues. Accessed November 30, 2018.
4. Why are drugs cheaper in Europe? Wall Street Journal. October 28, 2018. https://www.wsj.com/articles/why-are-drugs-cheaper-in-europe-1540760855. Accessed November 30, 2018.
5. Eurostat Statistics Explained. Cancer statistics. ec.europa.eu website. https://ec.europa.eu/eurostat/statistics-explained/index.php/Cancer_statistics#Deaths_from_cancer. Accessed November 30, 2018.
6. National Cancer Institute. Cancer statistics. cancer.gov website. https://www.cancer.gov/about-cancer/understanding/statistics. Updated April 27, 2018. Accessed November 30, 2018.
7. Medicare Prescription Drug, Improvement, and Modernization Act of 2003, HR 108-391, 108th Cong, (2003).
8. Cook EJ, McCormick DE, Schnelle SJ. CMS requests comment on potential international pricing index model for Part B drugs. McDermott Will & Emery. https://www.mwe.com/en/thought-leadership/publications/2018/10/cms-requests-comment-on-pricing-index-part-b-drugs. Published October 29, 2018. Accessed November 30, 2018.