Just days before the mid-term elections, the Trump administration announced a proposal that would dramatically change the way Medicare pays for drugs, by basing prices on the going rate in other industrialized countries. Their claim: The plan could result in savings of 30% on many of the country’s most expensive medicines for diseases such as cancer and multiple sclerosis—for both patients and taxpayers.

The proposed change faces an uphill battle as the pharmaceutical industry pushes back, conservatives decry it as a form of price controls and socialized medicine, and liberals contend it doesn’t go far enough. The Centers for Medicare & Medicaid (CMS) is soliciting public comments now until the end of the year.

If the proposal does go, though, the changes will be sweeping. How will the plan work, and when might you feel the effects?

Here’s what you need to know.

What drugs are involved

The proposal centers on the price of drugs purchased by the government via Medicare Part B. Part B pays for drugs administered by a physician in the doctor’s office, hospital, clinic or other therapeutic setting, and includes expensive treatments such as chemotherapy and rheumatoid arthritis medicines.

That’s different from the drugs that are managed under Medicare Part D, which covers the bulk of prescription medicines, usually those purchased by individuals at the pharmacy.

The government spent $26 billion on Part B drugs in 2015, according to the Government Accountability  Office. What’s more, Medicare accounted for 50% of the market for the most expensive Part B drugs, according to the report.

Instead of allowing pharmaceutical firms to set the prices for these drugs, the administration has proposed using an international pricing index comprised of average prices other industrialized countries pay.

The President pointed to a government study that found Medicare pays 80% more than other advanced industrial countries such as Canada, France and Germany for some of the most expensive physician-administered drugs.

In addition, the administration claims, the proposal would help eliminate a system that incentivizes doctors to choose the highest priced drugs. Currently Medicare reimburses health care providers for the wholesale costs of drugs plus 6% for storage and handling (on Nov. 1, the Trump administration released a new Medicare regulation that changes this reimbursement from 6% to 3% for 2019). 

What’s in it for you?

The good news is that if the Part B proposal is actually implemented, in the long run it could save Medicare enrollees money. Patients are charged a 20% co-pay for Part B drugs, so any savings the government can realize will also lower Medicare recipients out-of-pocket costs.

And co-pays can add up fast, when you consider just one regimen of some of the most expensive chemotherapy drugs can cost as much as $10,000.

But don’t get too excited yet. The Part B proposal would be rolled out over five years and only cover 50% of the country. Alex Azar, secretary of Health and Human Services said at a recent meeting that he expects the new model would begin late 2019 or early 2020 but that the proposal could change because the administration was open to alternative ideas.

What’s more, most experts expect the administration will face a major battle from the giant pharmaceutical industry.

“You may be switched to the cheaper medicine whether or not it’s as effective for you.”
David Charles, chairman
Alliance for Patient Access

And some patient advocates worry that drug pricing changes for Part B  could affect patient access to some of the most effective drugs. 

“If you’re doing well on one medicine and the federal government negotiates a better price on another medicine for the same illness, you may be switched to the cheaper medicine whether or not it’s as effective for you,” says David Charles, chairman of the Alliance for Patient Access.

While politicians, health care experts and patient advocates debate the merits of the Part B proposal, there are hints that more changes to Medicare Rx drug coverage may be coming soon. Also in October, the Office of Management and Budget posted a proposed rule that would “modernize” Medicare Part D.

While the post contained no details on the proposal or when it would be announced, it’s potentially a big deal. Part D pharmaceutical drug coverage accounts for 15% of total Medicare costs and for nearly a third of the amount spent on prescription drugs nationwide, according to research from the Kaiser Family Foundation.

For now, however, Medicare recipients can only wait and see if the new Medicare proposals turn into real savings.

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