Guest Commentary: What Might a Part B IPI Model Do to Drug Innovation, Patient Care?

By Michael Parenti, Senior Engagement Strategist, Saatchi & Saatchi Wellness

Feb. 1, 2019 — On Oct. 25, 2018, the Centers for Medicare and Medicaid Services (CMS) issued an advance notice of proposed rulemaking (ANPRM) to test whether phasing down the Medicare payment amount for selected Part B drugs to more closely align with international prices leads to higher quality of care for beneficiaries and reduced expenditures for the Medicare program. To achieve this, the Center for Medicare and Medicaid Innovation (CMMI) plans to explore an International Pricing Index (IPI) model based on data from 13 comparable countries. The model would go into effect spring 2019 and evaluation would take place over a five-year period (spring 2020 to spring 2025). Payments for most Part B drugs would be lowered to drug-specific, IPI-determined rates based on a blend of average sales price (ASP) and a 30% cost reduction price. The potential phase-in would occur as follows:

Year Percentage of ASP and Target Price
Year 1 80% of ASP and 20% of Target Price
Year 2 60% of ASP and 40% of Target Price
Year 3 40% of ASP and 60% of Target Price
Year 4 20% of ASP and 80% of Target Price
Year 5 100% of Target Price


The IPI model has the potential to lead to some of the most sweeping changes to Medicare in history. However, while the IPI model supports the goal of providing a value-based, transparent system, industry stakeholders are concerned about the impact of structural market change on patient outcomes.

Challenges and Concerns

Low participatory rates and public backlash have caused previous Medicare payment reform schemes to ultimately fail. Illustratively, the Competitive Acquisition Program (CAP), a voluntary program created through the Medicare Modernization Act of 2003, was implemented and abandoned within two short years. The program offered physicians the option to acquire drugs from vendors selected through a competitive bidding process, but with only a single vendor accepting the agency’s offer to negotiate with manufacturers and minimal rates of physician involvement, CAP was quickly sidelined. Furthermore, a post mortem report from CMS revealed that CAP ultimately raised Medicare’s drug costs by 3% to 3.5%. More recently, in March 2016 CMS proposed a demonstration model significantly changing Medicare reimbursement for Part B drugs. Prior to finalization, CMS was forced to withdraw the model after concerns about the plan’s impacts on drug accessibility generated more than 1,300 – overwhelming negative – public comments.

According to legal experts, the current ANPRM faces similar participatory and drug accessibility challenges as well as IPI-specific concerns that strike at the proposal’s core. Namely, the applicability over the prices set by foreign governments. By pegging the ASP to lower, government-dictated drug prices, the IPI model creates a disincentive to innovate, impeding pharmaceutical research during a time of significant scientific promise. This, in turn, could lead to delays in patient access to novel treatments. Opponents of the ANPRM argue that rather than determining Part B prices using government-dictated drug prices, the administration should ensure that other countries put pharmaceutical innovation policies into place in the context of modernized free trade agreements, thus sharing the burden of R&D costs.

Alternatives and Next Steps for Industry

As the process for implementing the ANPRM continues, there will be opportunities to reassess the IPI model and its methodology for determining target price. Careful consideration should be given to public comments, industry concerns, and additional reform measures that support CMS’ objective of lowering costs. Two such examples are value-based payment models that focus on increasing efficiency and providing higher quality care for patients; and data transparency that strengthens market competition by making evidence of the benefits and costs of treatments more transparent to stakeholders.

CMS should continue to explore big ideas that help lower Medicare Part B costs, emphasizing their strengths and learning from their flaws, while supporting innovation and patient access. As we move closer to the target implementation date in spring 2019, industry stakeholders must prepare and develop compliance contingencies. By proactively addressing and adapting to changes, industry will continue to expand access and provide the highest quality services to patients.