PHE’s Shafrin Provides Perspective on Part B Flat Rate Drug Proposal

Speaking with AIS Health’s Angela Maas, Senior Research Economist Jason Shafrin addresses the Trump Administration’s proposal to establish flat rate prescription reimbursement to physicians—calling out several of the pros and cons.

The complete article, including Dr. Shafrin’s quotes, can be found below.


Impact of Part B Model Would Be Felt Worldwide
AIS Health
by: Angela Maas

The recently proposed International Pricing Index (IPI), if implemented, will force manufacturers to reassess how they launch products on a worldwide basis (see story, p. 1). The model, part of an Advanced Notice of Proposed Rulemaking (ANPRM) focused on Medicare Part B, is certain to impact drug prices, but it may result in access issues in not only the U.S., but also international markets.

Currently CMS reimburses Medicare Part B drugs at their average sales price (ASP) plus 6% (although it really is plus 4.3% due to the 2013 budget sequestration). The administration is proposing that CMS instead reimburse these medications based on an International Pricing Index (IPI) based on drug pricing data from not only the U.S. but also 16 other “developed economies.”

Model Could Pose Long-Term Concerns

According to Jason Shafrin, Ph.D., senior director, Policy & Economics at Precision Health Economics, while the IPI model “is likely to save costs in the short run, it could have an adverse effect on patient health in the long run. Linking U.S. pharmaceutical prices to those other countries will drive down costs if other countries maintain their price.” In this situation, manufacturers’ overall revenue will fall, he says. And research shows that “lower revenues lead to pharmaceutical firms reducing their investments on research and development, which leads to lower levels of future innovation.”

Shafrin tells AIS Health that “another likely scenario…that would keep innovation levels and patient health neutral would be that pharmaceutical firms will respond to the Trump plan by raising prices in non-U.S. markets. If U.S. drug prices were indexed to prices abroad, and drug companies raise prices abroad, then U.S. prices are likely to still fall, but overall pharmaceutical firm revenue would not change. In this scenario, overall innovation levels and patient health would stay the same, drug costs in the U.S. would decrease, but drug prices abroad would rise. This would be a net gain for Americans and a net loss for non-U.S. individuals.”

According to Lisa Kennedy, Ph.D., chief economist at Epiphany, the “immediate implication” of this approach “is that drug manufacturers will have to include the U.S. in how they consider the order of launch. The U.S. will likely come first, as it is the biggest market, and then you’ll find that other countries see launches after this.”

Kennedy says she assumes that CMS “will take some kind of weighted or unweighted average.” She points out that of the potential nations, Austria, Belgium, the Czech Republic, Greece, Ireland and the UK “are generally lower-priced drug markets (especially Greece, UK, Czech Republic and Ireland) and so if a drug manufacturer launches a drug where most of the market is coming from Medicare Part B — say a high-priced immuno-oncology drug — they’d be inclined to weigh up the likely drop in average price from launching in those countries with not launching at all because it would so significantly affect the U.S. market size. So the implications could be difficult in these countries, as there will be less negotiating room unless the countries have a policy such as in the UK whereby there is a ‘confidential negotiation’ on a ‘real price’ that is irrelevant to a high list price.”

Interest Rates Will Be Factor

Another consideration for manufacturers, she says, “is the interest rate. We saw this in Japan with a drug that Lilly launched a little while ago: They pulled their drug from the reimbursement consideration in Japan for a few months, and then when the drug was reconsidered a few months later in Japan, they were stuck with a much lower price because of fluctuations in interest rates causing the average reference prices to fall. This is going to be important as far as the frequency in which the IPI is calculated.”

Kennedy also points to part of the ANPRM that is concerning with regard to the IPI: “In the absence of international pricing data, CMS could still calculate a model payment amount by applying a standard factor.”

This, she maintains, “is a worry because it looks like they will take the average of all Part B drugs. If that’s the case, then depending on how the average price of Part B drugs across the board compares to a potential ‘market basket’ in other countries, this could affect the launch order, delaying U.S. launch, with companies also launching with high list prices in other countries with actual prices negotiated in confidence (in those countries).”

Model Would Impact Product Development

Ultimately, the proposal could have downstream issues. Kennedy asserts that “this changes the equation in decision-making for products in early development. Companies with equal choices on Part B versus Part D drug candidates will favor candidates that would fall under Part D. They might take on work in formulation or abandon drugs that have a less sure path.

“Also, companies could favor drugs for younger patients or populations where there are fewer Medicare eligible patients,” she continues.

In addition to companies delaying or even abandoning product launches in certain countries, manufacturers may decide to launch in lower markets “at higher prices with little room for negotiation,” she says. “So those countries could see delays or see a lack of access all together. Also, these countries will likely enable a system whereby they publish very high list prices but then negotiate confidential lower prices equivalent to one-third or one-fourth of the published price.”

Contact Kennedy at and Shafrin through Tess Rollano at

Precision Medicine Group is an integrated team of experts in fields from advanced lab sciences to translational informatics and regulatory affairs, payer insights to marketing communications. Together, we help our pharmaceutical and life-sciences clients conquer product development and commercialization challenges in a rapidly evolving environment.