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U.S. Department of Health and Human Services Announces International Pricing Index Model to Lower U.S. Medicine Cost

  • 29/10/2018
  • Articles

On 25 October 2018, the U.S. Department of Health and Human Services (“HHS”) announced the International Pricing Index (“IPI”) Model as a new tool to lower the cost of physician-administered medicines in the U.S.. According to HHS, the IPI Model is based on international prices of medicines and on a degree of competition in the value chain between medicine suppliers and healthcare providers introduced by private-sector vendors. It will now form the subject of public consultations.

The international pricing component stems from findings in an HHS study that the US is paying 1.8 times as much as a range of other wealthy countries for medicines. For 19 of 27 products studied, the U.S. paid more than any of the other countries “with similar economic conditions” under review. To remedy what President Trump calls “foreign freeloading” resulting from supposedly extortionist pricing practices vis-à-vis US medicine producers, the IPI Model will set a sample of medicines at a Target Price which, in turn, will be determined on the basis of discounts given by medicine firms to other countries. The Target Price will amount to 126% of the average price which other countries pay for a given medicine. The Model will be phased in over 5 years and will start in 50% of the U.S. before being scaled up.

The HHS study underpinning the IPI Model includes 14 EU countries, Canada and Japan. The EU countries mirror Germany’s external reference pricing basket (minus Denmark and The Netherlands). The products selected are, broadly, the top 20 medicines sold under the Medicare programme for the elderly, including single-source medicines, biological medicines and biosimilar products.

One of the stated goals of the IPI Model is to “[a]ddress the disparity in drug prices between the U.S. and other countries”. While it is clear this effort is expected to lead to lower medicine prices in the U.S. (overall savings for U.S. taxpayers and patients are projected to total $17.2 billion over a period of 5 years), higher medicine prices overseas (or, alternatively, a reduction in the availability of specific medicines in foreign countries) cannot be ruled out.

The IPI Model follows the May 2018 publication of the U.S. government policy paper “American Patients First” which had already decried the “foreign governments’ free-riding off American investment in innovation” (see, our article of 14 May 2018).

The following publications are attached by way of background:

  • HHS study “Comparison of U.S. and International Prices for Top Medicare Part B Drugs by Total Expenditures” – 25 October 2018;
  • HHS press release “HHS Advances Payment Model to Lower Drug Costs for Patients” – 25 October 2018;
  • HHS press release “What You Need to Know about President Trump Cutting Down on Foreign Freeloading” – 25 October 2018;
  • Advance Notice of Proposed Rulemaking “International Pricing Index Model for Medicare Part B Drugs” – undated; not yet published in Federal Register.

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