United States: CMS Considers Linking Medicare Drug Payment Rates To International Prices

On October 25, 2018, the Centers for Medicare & Medicaid Services (CMS) issued an advance notice of proposed rulemaking (ANPRM) describing a potential mandatory model to test Medicare reimbursement based on an "International Pricing Index" (IPI).1 Medicare would pay private sector vendors for Part B drugs at rates established using the IPI, and participating physicians and hospitals would receive an "add-on" payment. Under the IPI model, U.S. drug prices would be benchmarked against the reportedly lower drug prices in 14 other countries. The IPI model would seek to permit Medicare to more closely align its Medicare payment amount for selected Part B drugs with prices in other nations, reduce out-of-pocket costs for Medicare beneficiaries, increase access and adherence, and create greater competition in the acquisition process for Part B drugs.2 According to the CMS, the model would save taxpayers and beneficiaries US$17.2 billion over five years (2020-2025), with Medicare's total spending on the selected drugs dropping by as much as 30 percent.3

The CMS will accept comments on the ANPRM until Monday, December 31, 2018. The CMS is considering issuing a proposed rule that would describe the model in more detail in spring 2019, with the goal of starting the model in spring 2020.4

The CMS announced the potential model in the wake of the release of a report from the Department of Health and Human Services Office of the Assistant Secretary for Planning and Evaluation (ASPE) that found manufacturers' prices to wholesalers and distributors for drugs with the highest spending under Medicare Part B are 1.8 times higher than those in other countries.5 According to the report, Medicare and Medicare beneficiaries could have saved approximately US$8.1 billion in 2016 if payments were scaled by international price ratios.

Who would participate in the model?

The mandatory IPI model would include all physician practices and hospital outpatient departments (HOPDs) that furnish the model's included drugs in the model's selected geographic areas.6 The CMS is also considering whether to include durable medical equipment (DME) suppliers, ambulatory surgical centers (ASCs), and/or other Part B providers and suppliers that furnish the included drugs.

The CMS anticipates the selected geographic areas would reflect 50 percent of Medicare Part B spending on separately payable Part B drugs.7 In selecting geographic areas, the CMS indicates that the two main factors to consider would be the most appropriate geographic unit (e.g., ZIP code, county, core based statistical area (CBSA), state) that reflects how care is delivered, and the number of geographic units needed to generate statistically credible findings. The CMS is considering using CBSAs as the primary unit of analysis in the model.

Which drugs would be included?

This model would apply only to selected separately payable drugs and biologicals (referred to by the CMS as "drugs") administered in doctors' offices and HOPDs, including cancer treatments and injectable therapies.8 When a drug is furnished in an HOPD, the model would apply if the drug has pass-through payment status or if the drug's Healthcare Common Procedure Coding System (HCPCS) code is assigned a distinct ambulatory payment classification (APC) group under the outpatient prospective payment system (OPPS).9 Drugs that are not separately paid under the OPPS would not be included in the model when furnished by an HOPD, but would be included when furnished in physician's offices.

In years one and two, the IPI model would include only single source drugs, biologicals, biosimilars, and multiple source drugs with a single manufacturer that the CMS would identify from currently available, reliable sources of international pricing data.10 In subsequent years, years three, four, and five, the CMS would broaden the scope of included drugs to incorporate more of these single source drugs and biologicals as more sources of international pricing data become available. The CMS is also considering including multiple source drugs and drugs provided in other settings. Specifically, it is considering including multiple source drugs, based on a concern that price increases among generic drugs are also contributing to the rising payments for Part B drugs. The CMS seeks comments on ways to calculate payment for newly approved drugs that do not yet have international sales.

Under the IPI model, several types of drugs would potentially be excluded, such as

  • drugs that are identified by the Food and Drug Administration (FDA) to be in short supply;
  • drugs paid under miscellaneous or "not otherwise classified" (NOC) codes, as well as compounded drugs, due to the operational complexity of identifying if drugs paid under the NOC codes are included model drugs;
  • radiopharmaceuticals;
  • end stage renal disease (ESRD) drugs paid under the ESRD Prospective Payment System (PPS); and
  • drugs that are packaged under the OPPS when they are furnished by an HOPD.11

How would rates of reimbursement to vendors be set under the IPI model?

Reimbursement rates would be set using pricing data from Austria, Belgium, Canada, the Czech Republic, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, the Netherlands, and the United Kingdom.12 The CMS is considering calculating an average international price for each drug in the model, and then calculating the IPI, which would be the ratio of Medicare spending using average sales price (ASP) for all drugs in the model to estimated spending using international pricing. The CMS would multiply the IPI, adjusted by a factor to "more closely alig[n] Medicare payment with international prices,"13 by each drug's international price to establish a target price for each drug. The CMS' goal is to achieve "about a 30 percent reduction in Medicare spending"14 for drugs under the model. The CMS would phase in the target price over the five years of the model, as a blend of ASP and the target price.

Who could be a vendor?

The model's contemplated use of private sector vendors is based on the Competitive Acquisition Program that was in effect from 2006 through 2008, but would reflect significant changes.15 To increase competition, the IPI model would potentially allow entities such as group purchasing organizations (GPOs), wholesalers, distributors, specialty pharmacies, individual, or groups of physicians and hospitals, manufacturers, Part D sponsors, and/or other entities to perform the role of model vendor as long as they could satisfy the vendor qualification requirements.16 The CMS is seeking input on the types of entities that would be allowed to be vendors, as well as on potential perverse incentives and guardrails. Model vendors would be identified through a competitive selection process. Ultimately, the CMS intends to select three to four model vendors but is soliciting comments on whether a different number would be appropriate.

How would the add-on payment to physicians and providers be calculated?

Model participants would be paid a set payment amount per encounter or per month (based on beneficiary panel size) for an administered drug, which would not vary based on the model payment for the drug itself.17 The aggregate payments under this methodology would be based on the expected add-on amount for included drugs in the absence of the model, before sequestration (i.e., six percent of aggregate ASP).

The CMS is considering a set payment amount per administered drug that would be based on

  • the class of drugs to which the administered drug belongs;
  • the physician's specialty; or
  • the physician's practice.18

To incentivize reduced utilization where appropriate, the CMS is also considering creating a bonus pool, where model participants would achieve bonus payments for prescribing lower-cost drugs or practicing evidence-based utilization.

What new price reporting obligations would apply to manufacturers?

The CMS is considering creating a new requirement for manufacturers to report certain international sales data to support its implementation of the IPI model.19 The agency states that one approach would be to require manufacturers to provide, on a quarterly basis, international drug sales prices and units sold – which is the type of information that manufacturers participating in the Medicaid Drug Rebate Program (MDRP) currently report to the CMS with respect to their U.S. sales. The CMS would provide reporting instructions, including information such as the unit level at which to report, the countries to include in the report, and how to account for exchange rates, as well as the use of reasonable assumptions.20

The agency states that it would take time to establish the requisite infrastructure and reporting instructions to enable it to collect and validate manufacturer-reported international sales data. Until such manufacturer-reported data would become available to the agency, the CMS contemplates relying on existing data sources for purposes of calculating the model payment to model vendors for included drugs.21 The agency contemplates using the following existing data sources to support its implementation until manufacturer-reported pricing data would become available.

  • Data provided by private companies or obtained through review of manufacturers' public filings in other countries
  • Data from a CMS-constructed price comparison based on publicly available sources from each country22
  • The CMS seeks comment on the potential use of existing data sources and new data sources to establish the IPI and target price. The agency is also interested in better understanding the extent to which existing international sales-related data sources completely capture drug information in every international market that the CMS is considering for inclusion in the payment methodology, as well as how countries that provide drugs through public insurance account for private market drug sales in publicly available drug pricing sources.23
  • Questions to consider in evaluating this aspect of the model include:
  • Legal authority for a potential new reporting requirement. The obligation of manufacturers enrolled in the MDRP to report Medicaid (average manufacturer price (AMP) and best price (BP)) and Medicare (ASP) pricing data is based in statute. The ANPRM does not address how the CMS would require manufacturers to report additional information, a gating item for its contemplated model.
  • What if the U.S. manufacturer does not control international pricing? Many U.S. manufacturers partner with other entities to commercialize products outside the United States or vice versa. The ANPRM presumes that control over U.S. and international pricing resides in a single corporate entity, such that a reporting requirement imposed on the U.S. entity would pull in the international data. That may not always be the case. Such a disconnect also would mean that the U.S. entity should not be held accountable for ex-U.S. pricing.
  • Calculation mechanics. As any manufacturer that reports Medicaid and Medicare pricing data knows, there are a host of issues that can arise when examining how a price to the market is calculated. Is the international price a straight average or a weighted average? In some markets, there may be after-the-fact price concessions provided to the government. How would those be accounted for? If there is patient cost-sharing in international markets, how is that treated? Such practicalities can have a material impact on the data reported and its resulting usefulness as a reimbursement metric.
  • BP, AMP, and the 340B ceiling price. The ANPRM itself notes that, if a manufacturer offers a model vendor a price at or below the model payment rate, such a price would be included in the manufacturer's determination of best price and, accordingly, could impact the manufacturer's best price. The CMS seeks comment on "how manufacturers would respond to these factors as they relate to model vendors and Medicaid drug rebates."24 The CMS further notes that such prices could impact the product's AMP (which the CMS presumes would be calculated using the so-called 5i AMP formula, given the types of drugs at issue), and seeks comments on that topic as well. As AMP and possibly BP impact a product's 340B ceiling price, the CMS also seeks comments on the 340B impact of the model.
  • VA/FSS pricing. The ANPRM does not consider the potential impact of manufacturer pricing to model vendors on a product's price to the Department of Veterans Affairs (VA) and under the Federal Supply Schedule (FSS). That is another factor to evaluate.


1 CMS, "Medicare Program; International Pricing Index Model for Medicare Part B Drugs," available here (hereinafter ANPRM).

2 Id. at 5-6.

3 HHS press release: "What You Need to Know about President Trump Cutting Down on Foreign Freeloading," October 25, 2018, available here.

4 ANPRM, at 7.

5 U.S. Department of Health, Office of the Assistant Secretary for Planning and Evaluation (ASPE), "Comparison of U.S. and International Prices for Top Medicare Part B Drugs by Total Expenditures," October 25, 2018, available here.

6 ANPRM, at 25.

7 Id. at 27.

8 Id. at 32-33.

9 Skin substitutes that are separately payable as drugs could be included in the model under these criteria.

10 ANPRM, at 33.

11 Id. at 36-37.

12 Id. at 43.

13 Id. at 39.

14 Id.

15 See id. at 10-13.

16 Id. at 17.

17 Id. at 30.

18 Id.

19 Id. at 41.

20 Id. at 41-42.

21 Id. at 40.

22 Id. at 40.

23 Id. at 44-45.

24 Id. at 49.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions