Cheap Pharmaceutical Costs by Federal Decree Is a Dangerous Path

Cheap Pharmaceutical Costs by Federal Decree Is a Dangerous Path
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In 2016, presidential candidate Donald Trump vowed to bring a businessman’s perspective to critical issues facing the country.

American voters, frustrated by big government’s chokehold on economic progress, welcomed the idea. It was an attractive notion: a new vision, decisive action, and rapid results on issues that affect Americans the most.

Decisive action, however, must be accompanied by adherence to sound principles, because failure can invite unintended consequences or make problems worse. It would be wise for federal regulators and the Trump administration to keep that in mind as they prepare to lead the nation’s health care system into uncharted territory.

Steep Price of IPI Indexing

To get a handle on prices and costs, the Centers for Medicare and Medicaid Innovation (CMMI), with the support of the Trump administration, wants to change the reimbursement formula for drugs covered under Medicare Part B. Currently, Medicare reimburses physicians directly for drug expenses based on the average sales price (ASP) plus 6 percent. The new payment model would use third-party drug brokers purchasing medicines based on the International Pricing Index (IPI), an index of drug prices arbitrarily and politically imposed by governments in 14 developed countries. Naturally, these prices are lower than the drugs’ true market value. Although this may sound like cost savings for Medicare, switching to this new indexing will come at a steep price.

Forcing providers to buy medicines from third-party middlemen would remove doctors’ control over treatment options they deem best for their patients. If a vendor does not offer a particular drug—which could happen in a separate level of price negotiation between buyer and seller—a physician may be forced to use a less-effective medicine than is offered through other vendors.

The new indexing will be phased in for a five-year period starting in 2020 and will cover some drugs in Medicare Part B, but not all. Still, five years can be a long time for someone with a life-threatening illness who needs quick access to medicines.

Troubling Size, Scope

The mandatory nature of the proposal and its scope are also troubling. The new model will cover half of all Medicare beneficiaries, who will have little recourse. Created under the Affordable Care Act, CMMI can bypass Congress to make significant changes to Medicare policy, the kind of end run Trump rightly criticized on the campaign trail.

The IPI model would set a dangerous precedent. Because of its size and scope, its lack of a control group, and sole focus on cutting costs, calling it a demonstration program instead of a full policy shift is inaccurate. Ultimately, the IPI model would force an unproven, untested hypothesis on a large number of our nation’s seniors.

Physicians are rightly concerned the mandatory IPI model will interfere with the physician/patient relationship and put vital decision-making regarding treatment in the hands of middlemen.

Suppressing Innovation

In addition, artificially mandating prices that don’t reflect a drug’s real value will reduce investment in future medicines, as innovators may find the financial risks for new drug development far outweigh the reward for being first to market. If pharmaceutical innovators drastically slash investment in research and development, as would be expected if such fixed-price government schemes were made permanent, tomorrow’s breakthrough medicines may never be discovered or brought to market, affecting patient outcomes for decades to come.
The harmful, disruptive nature of IPI is exactly why CMMI was not given unfettered authority to implement sweeping mandates that circumvent congressional authority. Without significant refinements, the IPI may soon face legal challenges very familiar to the Trump administration.

Health care delivery is among the most complex issues facing our government. Focusing solely on cost-cutting without considering patient outcomes leads us down a dangerous path. Without a full and complete understanding of what’s at stake, and how patients will be affected, the road to hell will indeed be paved with good intentions.

Demetrios Karoutsos is a political and public affairs strategist who has worked on a number of congressional, gubernatorial, and Senate campaigns.

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