KEI Comments on Medicare Programs: International Pricing Index Model for Medicare Part B Drugs (CMS-5528-ANPRM)
Knowledge Ecology International (KEI) is a non-profit organization that focuses on the management of knowledge goods, including new drugs, vaccines and other medical therapies. Much of our work is reported on our web page, at https://keionline.org.
We offer the following comments on the proposal to test international referencing pricing for selected Medicare Part B drugs.
The proposal is limited, by design.
- The program will only apply to a relatively small number of drugs that are covered by Medicare Part B, and even then, for limited geographic areas that comprise 50 percent of current spending for the Part B drugs.
- Roughly 84 percent of the U.S. population is under 65 and unless on disability or being treated for end-stage renal disease (permanent kidney failure requiring dialysis or a transplant), do not qualify for medicare.
- Medicare Part B is primarily limited to drugs that are not self administered, excluding most prescription drugs.
- The program will begin no sooner than the Spring of 2020, in the middle of President Trump’s re-election campaign, apparently to allow the President to claim he is doing something about high drug prices, even though the program begins in the last half of the last year of this first term in office.
- The most important cost control measures are phased in from 2020 to 2025, and nearly all of the estimated savings come after the 2020 election.
- In 2020, the international pricing index will only be used to determine 20 percent of the price of the covered drug purchases. The full benefits of the price reductions are scheduled for the Spring of 2025, after a second presidential election in 2024.
The proposed International Pricing Index Model for Part B Drugs seeks to achieve a 30 percent reduction in Medicare spending for “included Part B drugs” by 2025, and then expire.
President Trump can take credit for savings before they occur, and even allow the program to be ended after the election, before most of the modest cost savings are realized.
If one was to design a program that appeared to address the need to curb high prices for drugs, without doing much in Trump’s first term, and promising nothing after 2025, it might look like the proposal.
The proposal has certain risks for patients, in the short run, but perhaps more important, it can be fairly described as a measure designed to distract and block other reforms that would be more meaningful, a type of damage control to manage the growing political pressure to control drug prices.
The proposal presents risks to medicare patients included in the experiment
If a patient is on Medicare, and requires drugs covered by Medicare Part B, and is included in the geographic area for the experiment, it is possible that the drug manufacturer will refuse to lower prices in accordance with the international price index.
There is nothing in the proposal to explain how patients will be protected when price negotiations break down.
In other high income countries where threats to narrow or withhold coverage are used as leverage in price negotiations, such standoffs can and do result in severe or absolute limits on coverage for drugs where prices are deemed to be excessive. This puts patients at risk.
Governments, including the U.S., can and should address the risk that companies will refuse to sell at the target prices by incorporating robust measures to end legal monopolies, including cancelling regulatory monopolies and using compulsory licensing to end patent monopolies, when companies refuse to sell at the target prices.
The ability to threaten compulsory licensing are strongest when the federal government owns a royalty free right in one or more relevant patents. But NIST, in a draft Green Paper on Return on Public Investment (https://doi.org/10.6028/NIST.SP.1234) is proposing rules that will make it impossible to use the federal government royalty free right in such cases.
Among the more appalling recommendations in the draft Green Paper are those that relate to three public interest safeguards in the Bayh-Dole Act, including:
- The federal government’s royalty-free right to inventions it funded, as mandated under 35 USC § 202 and 35 USC § 209;
- March-in rights on federally funded inventions, under 35 USC §203; and
- The obligation to bring federally-funded inventions to practical application, including in particular the requirement that the benefits of the inventions be made “available to the public on reasonable terms.”
Also, in the USMCA trade agreement, provisions on damages for patent infringement make it more risky to invoke 28 USC 1498 to permit non-voluntary use of patented inventions when prices are excessive. (See: https://www.keionline.org/29175)
The focus on biologic drugs makes it more challenging to obtain affordable alternatives.
Biologic drugs are often expensive and subject to less competition than small molecule drugs. If the program focuses on biologic drugs, and only for half of the purchases for drugs covered by Medicare Part B, it will be very challenging to find alternative suppliers, when negotiations with an originator drug manufacturer breaks down. This is particularly true when one considers the significant entry barriers for biosimilar products not only in the United States, but in other high income countries.
December 31, 2018
James Love, Director
Knowledge Ecology International
1621 Connecticut Avenue, NW
Washington, DC 20009