The Trump administration’s plan to tie Medicare payment for outpatient drugs to prices charged in foreign countries depends on providers negotiating drugmakers’ prices down to meet reduced reimbursement levels.
While the administration pitches the Center for Medicare and Medicaid Innovation demonstration as an effort to lower drug prices, it’s unclear whether or by how much drugmakers would actually lower the prices they charge healthcare providers. If they don’t, providers have to choose whether to offer the drugs at a financial loss.
The draft version of the policy released in 2018 proposed creating a third-party vendor to take on financial liability for the drug, but the middleman role was scrapped in the new interim final rule. The change simplifies the model but adds new liability for healthcare providers with little notice, Rachel Sachs, an associate professor at the Washington University in St. Louis School of Law, wrote in an article in Health Affairs.
“Under the reimbursement terms of the IFR, each provider group will need to engage in its own negotiations with manufacturers or distributors in an effort to obtain prices more in line with CMS’ new reimbursement rates, rather than centralizing negotiating authority in a smaller group of vendors (each of whom would presumably have greater negotiating capacity),” Sachs wrote.
The model is supposed to go into effect Jan. 1, 2021 and phase in over four years. Former White House aide Abe Sutton said it could initially be a challenge for providers to negotiate new rates in such a short amount of time with little visibility into what the most-favored nation prices would be.
“While at first blush, leverage would seem like an issue, I think the approach, if it didn’t need to be implemented in less than two months, could theoretically work,” Sutton said.
Participation would be mandatory for healthcare providers with some exceptions, including cancer hospitals, children’s hospitals, ambulatory surgical centers, critical-access hospitals, rural health clinics, federally qualified health centers, and Indian Health Service facilities.
Some providers will be more well-prepared to adjust to the model than others, said West Health Policy Center health policy director Sean Dickson.
“The challenge will be for providers who don’t have sophisticated virtual inventory management systems whether they will be able to acquire the drugs at a cost that makes it financially appropriate for them to administer the drugs,” Dickson said.
Beneficiaries would likely pay lower cost-sharing in the model, but could lose access if their healthcare provider is unable to negotiate a low enough price to continue administering the included drugs.
Besides cutting reimbursement for the drugs themselves, CMS expects some specialties to see lower add-on payments under a transition to a flat fee, per-dose structure. Those specialties are hematology/oncology, medical oncology, neurology, gastroenterology, gynecological/oncology, infectious disease, hematopoietic cell transplantation & cellular therapy and dermatology. Other specialties could see slight pay increases.
The rule is likely to be challenged in court, as the Trump administration skipped an intermediate step in the rulemaking process and issued a final rule instead. Sutton said the reasoning the administration gave for rushing the rule “is not grounded in precedent.”