(Updated at 4:55 p.m. ET)
The Trump administration on Thursday accelerated its efforts to bring prescription drug costs under control, announcing the first mandatory CMS pay model.
Speaking at the Hubert H. Humphrey Building, President Donald Trump introduced an aggressive proposal from HHS to drive down prescription drug rates paid by Medicare Part B by indexing them to the much lower prices paid by other advanced countries and changing the way physicians are paid for administering those drugs.
HHS projected that the new proposal would save the government and Medicare beneficiaries more than $17.2 billion over five years.
Under the International Pricing Index Model, payments for Part B drugs, which are physician-administered medications, would shift to align more closely with prices in other countries. The model would be mandatory for providers in randomly selected geographic areas.
"The U.S. will finally begin to confront one of the most unfair practices ... that drives up cost," Trump said. "It's a revolutionary change. No one had the courage to do it, or they didn't want to do it."
The proposal would gradually shift Part B payments for some outpatient drugs, including cancer drugs and biologics, to international prices.
The model won't launch until late 2019 or early 2020, according to HHS Secretary Alex Azar. This will give the agency a chance to incorporate feedback from providers and pharmaceutical companies.
The U.S. government has never before based any healthcare payment rates on rates paid in other countries. If adopted, the administration's proposal could open the door to similar international reference pricing for medical devices and other products, as well as for prescription drugs in Medicare's Part D program, said Gerard Anderson, a health policy and management professor at Johns Hopkins University.
"This is game-changing in terms of looking at other countries' prices," he said. "There's never been anything like that. Most people were afraid to even suggest it. The device industry should be nervous about this."
The proposal also would change how doctors are paid for drugs under Part B. In 2006, Medicare Part B started paying physicians 6% on top of the average sales price. But that formula created several problems, and a physician could receive $600 for administering a $10,000 drug compared to $60 for a $1,000 drug.
The 6% formula didn't encourage physicians to control costs, the agency said.
"The situation we have now is untenable," Azar said. "We are just paying the sticker price plus 6%."
The International Pricing Index Model would create a system in which physicians and hospital outpatient departments would no longer buy and bill for drugs under Part B. Instead, the CMS would contract with private-sector vendors to procure drugs and then distribute them to providers.
These private companies would aggregate purchasing, seek volume-based discounts and compete for providers' business. That would create new competition, the agency said in its proposed rule.
Providers could also compete to be a vendor under the program. Group purchasing organizations could also be vendors.
Under the model, providers will also receive a set payment for storing and handling drugs. That would remove the financial incentive to prescribe higher-cost drugs, according to the CMS.
The move from current payment levels to ones based on international prices would be phased in over five years, would apply to 50% of the country, and would cover most drugs in Medicare Part B. The CMS has asked for input on where the model should launch.
"In an era where the pharmaceutical industry is pricing drugs at levels approaching a million dollars—and jeopardizing the future of our safety net programs—the time has come to fix the perverse incentives in the Medicare program that are fueling price increases," CMS Administrator Seema Verma said in a statement.
The Obama administration made its own Medicare Part B reform proposal, but was forced to withdraw the rule in 2016 in the face of fierce opposition from physician and patient groups and the pharmaceutical industry.
Azar said the Trump model differs from the Obama-era approach. The earlier proposal was essentially a cut to providers and otherwise kept the central Part B drug-purchasing framework in place. Under this model, providers no longer buy the drugs directly.
Both Azar and Verma added that unlike the Obama model, there will be extensive efforts to seek and include provider feedback in the finalized version of the model.
Political observers expressed uncertainty about whether the environment has changed enough since then to enable the Trump administration to push its plan through. But they predict Democrats are likely to be more supportive than Republicans were in response to the Obama administration proposal.
Trump said Medicare spending for one particular eye medication, which he didn't identify, would drop from $1 billion a year to $187 million under the administration's proposal.
He accused other countries of free-riding on U.S. drug innovation at the expense of U.S. taxpayers and seniors by paying much lower prices that don't support the cost of drug research and development. But nothing in the proposal he presented would affect the prices people in other countries pay. Instead, the U.S. would seek to pay the same, lower prices.
That proposal would depend on drug manufacturers being willing to accept the new lower Medicare Part B prices, and the CMS being willing to exclude their products if they did not. Many of the drugs that would be affected have no competition.
"That's how other countries do it," said John Rother, CEO of the National Coalition on Healthcare. "You have to be able to say no and condition market entry on a more reasonable price."
A consumer group lobbyist who didn't want to be identified said his group is concerned about maintaining access to drugs as well as driving down prices. But he said it would not be easy for manufacturers to walk away from the huge Medicare market.
With less than two weeks before the midterm congressional elections on Nov. 6, Trump played up what he called his administration's achievements on drug prices and health policy, including a new bill letting pharmacists talk to patients about lower-priced alternatives. He also accused Democrats of favoring "a very socialist healthcare plan that would destroy Medicare, terminate Medicare Advantage, and outlaw employer health plans for 157 million Americans."
After blasting Democrats, he said he expected them to back his administration's drug price reduction proposal.
"We think they'll come along with us when they see what we're doing," he said. "It was a Democratic congressman who told me how important drug pricing was to his constituents."