President Trump put some bite in his bark against drug prices when he announced a new Medicare payment model that the administration says will save American taxpayers billions of dollars over the next several years.

Targeting what he called “global freeloading,” Trump unveiled a plan during a press conference Oct. 25, 2018, that allows Medicare to set payments for select Part B drugs at a target price based on the discounts pharma gives to other countries. Currently, Medicare sets payments for physician-administered drugs based on the average sales price in the U.S. market plus a price-based add-on fee.

Introducing an International Pricing Index (IPI) model to the United States, the Trump administration promises to bring down Part B drug prices while cutting down on “foreign freeriding.”

“For decades, other countries have rigged the system so that American patients are charged much more for the exact same drug,” the president said.

The IPI model will be phased in over five years, with targeted overall savings for patients projected to be $17.2 billion, with out-of-pocket savings potentially totaling $3.4 billion, according to statistics from the Department of Health and Human Services. This timeframe certainly provides pharmaceutical firms and their representative groups a window of opportunity to lobby against the proposed changes and/or attempt to tweak the reforms outlined under the IPI.

The president’s announcement coincided with the release of an HHS report that examined the cost of 27 Part B drugs and compared U.S. expenditures to what countries with similar economic conditions pay. The report concluded that Medicare pays nearly twice as much on average compared to foreign countries.

It’s assumed these 27 drugs would be included in the “select” pharmaceuticals targeted by the proposed IPI model. Among those analyzed in the HHS report were Avastin, Herceptin, Lucentis, Remicade, Soliris, and Xolair.

James Greenwood, president and CEO of BIO, said in a statement that placing foreign price controls on a certain number of drugs “will severely chill investment in new cures and therapies for America’s seniors.”

It’s too early to tell the impact the proposal could have on pharmaceutical companies and their research programs. Trump has promised to introduce drug pricing reform, and he did so, but initial market reactions did not indicate panic on the part of pharma. Greenwood said BIO will oppose “short-sighted and harmful changes” to Medicare. This promises to be an issue worth watching for further developments as we move into the new year.

Chris Silva is a senior analyst at DRG and specializes in information technology, telehealth, and big data, among other topics. His work appears in Health Plan Analysis and Market Overviews. Follow him on Twitter at @ChrisSilvaDRG

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