In October, CMS released for comment the International Price Index (IPI) Model, which would change the way Medicare pays for physician-administered drugs. Specifically, the advanced notice of proposed rulemaking (ANPRM) envisions using an international price index to reduce US drug prices to a level more closely aligned with their international prices, introducing vendors to eliminate the buy-and-bill model, and restructuring drug add-on payments for physicians—all inside a demonstration that would include roughly half of Medicare FFS payments for included Part B drugs. CMS has projected the demonstration would save the Medicare and Medicaid programs more than $17 billion over 5 years, but stakeholders have sought to better understand the specific impact on beneficiaries and providers.

Patient Impact

Avalere’s analysis finds that the vast majority of seniors in Medicare would not see a reduction in their out-of-pocket (OOP) costs from the proposed IPI model because more than 87% of Part B beneficiaries have supplemental coverage (e.g., Medigap, employer sponsored, Medicare Advantage, Medicaid) that covers their cost sharing for Part B drugs.¹

Avalere estimates that less than 1% of seniors in Medicare would see reduced OOP costs (in a given year) if the demo were to include the 27 drugs listed in the Office of the Assistant Secretary of Planning and Evaluation (ASPE) Report that was released in conjunction with the ANPRM. This figure is a result of the small number of beneficiaries taking 1 of the 27 included drugs (about 4% of all Part B FFS enrollees), and the low number (10–13%) of beneficiaries without any supplemental insurance.

Provider Impact

Within the IPI demo regions, Medicare would pay newly created vendors (instead of providers) for Part B drugs at IPI-indexed prices, rather than at current ASP levels, and would pay providers a separate add-on payment. It is unclear how CMS would ultimately structure the add-on payments and the ultimate impact on providers, but its stated intent is to pay providers add-on payments (in aggregate) that amount to what their ASP+ margin would be without sequester.

HHS has stated that lower payments from IPI vendors to manufacturers would reduce the ASP outside of the IPI regions. Avalere’s analysis indicates that, as a result, providers outside the demo are likely to experience a reduction in drug payments, with variation by specialty. Outside the IPI model, Medicare would continue to pay providers for Part B drugs at ASP+6%.² However, if drug manufacturer sales to vendors inside the demo are included in the calculation of ASP, the lower ASP level would lead to a lower payment for physicians who buy and bill drugs included in the IPI index.

Table 1. Potential Payment Impact on Providers Outside of the IPI Demonstration by Specialty

Funding for this research was provided by the Pharmaceutical Research Manufacturers of America. Avalere maintained full editorial control.

Methodology

Avalere modeled the beneficiary impact of the proposed IPI policy using a combination of the 2017 Medicare Standard Analytic Files, 5 percent sample, as well as Medicare Current Beneficiary Survey (MCBS) data for 2015, and the paper titled “Comparison of U.S. and International Prices for Top Medicare Part B Drugs by Total Expenditures,” released by the U.S. Department of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation (ASPE) on October 25, 2018. The IPI payment changes were simulated using 2017 claims and the US and international prices published in the ASPE paper. MCBS data, along with MedPAC reports, were used to estimate the number of Medicare beneficiaries with no supplemental coverage.

Notes

1. Avalere estimates that more than 90% of beneficiaries have supplemental coverage for most of the months they are enrolled in Part B. MedPAC’s estimate of 87% includes only those with continuous supplemental coverage throughout the year.
2. ASP+4.3% when accounting for sequestration.