The Challenges and Risks of Adopting Foreign Price Controls

The Challenges and Risks of Adopting Foreign Price Controls

The Trump Administration is moving forward with a plan to import foreign price controls into Medicare. Under the proposed International Pricing Index (IPI) model, the federal government would move away from a long-standing market-based reimbursement system to one that is tied to prices paid in countries with single-payer health care systems.

Here’s how the current system works. Under Medicare Part B, the government reimburses payers for medicines that are administered directly by providers at a hospital or clinic. Today physician practices purchase Part B drugs, deliver them to Medicare beneficiaries and are reimbursed by Medicare based on the average sales price plus an additional fee to cover physicians’ administrative expenses (currently set at 4.3 percent).

Here’s what the Trump administration’s proposal would do. The proposed IPI model would replace the current reimbursement system with one based on the average prices set by more than a dozen foreign countries. Instead of allowing physicians to purchase these medicines directly, doctors would have to go through certain vendors or middleman to acquire the medicine. The proposal would also replace the current add-on payment for drug administration with a flat fee.

Importing foreign price controls in Medicare would be detrimental to patients and America’s scientists and researchers who are trying to develop new cures and treatments. Here’s why:

Adopting foreign price controls would jeopardize access to new, innovative medicines for patients in need. As the data show, of 74 cancer drugs launched between 2011 and 2018, 95% are available in the United States, compared with 74% in the United Kingdom, 49% in Japan, and 8% in Greece. In addition, these countries which have government run single-payer systems, government officials determine how much the government is willing to pay for each medicine. Under this “take or leave it” approach, the government may save money, but patients pay in the form of delayed – or denied – access to the medicines they need.

An IPI model would put America’s innovative medicine pipeline at risk. And that means patients across the globe would feel the effects. “An overwhelming body of academic research” shows that price controls reduce industry R&D, and that decreases the number of new drugs in development for patients to benefit from. In fact, the U.S. Department of Commerce found that price controls in OECD countries reduced global R&D spending by between $5 billion and $8 billion, enough to fund the discovery of three to four new drugs per year. Not only does this demonstrate that America’s market-based system works, but it also proves that importing a system that discourages investment into new, innovative new treatments would adversely impact patients who need them.

Furthermore, economists have warned that had foreign price controls been adopted in the U.S. from 1986-2004, 117 fewer new medicines would have been produced for worldwide use. Similarly, a 2018 study by researchers with Precision Health Economics found that eliminating price controls in OECD countries would lead a 12 percent increase in R&D and the development of 13 new drugs per year. And new data from Vital Transformation reveals that implementing the administration’s proposal would penalize the discovery of breakthrough medicines and disproportionately target some of the more innovative biopharmaceutical companies.

Reduced out-of-pocket costs would be minimal. The notion that patients would pay less for medicines covered under Medicare Part B is simply not true. In reality, less than 1% of Medicare beneficiaries would see reduced out-of-pocket costs if the Trump administration moves forward with their proposal. And in recent years, total spending on prescription drugs was only 10% of overall Part B spending – less than 5% of total Medicare spending.

Introducing new middlemen adds costs and complexity to an already complex system. The IPI model undermines the successful Medicare Part B program by requiring new middlemen in the system that will impact physicians’ ability to provide the most appropriate medicines for their patients. In addition, enacting such a proposal could impact doctors across the entire country. Physicians who are unable to absorb these burdens and reimbursement changes, such as smaller practices and rural health providers, would likely close or shift services to higher-cost hospital settings. By driving provider consolidation and moving these services to more expensive health care settings, the administration’s proposal risks increasing costs for patients, physicians and taxpayers.

Medicare Part B supports the most vulnerable Medicare patients and accounts for only a small fraction of all Medicare spending. Short-sighted and harmful changes to a program that is so vital to the health and well-being of our seniors would be a significant step in the wrong direction.

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