Trump Administration Seeks to Cut Drug Costs with Medicare Payment Overhaul


Under the proposed plan, Medicare payments for Part B drugs would be based on international prices.

Last week, President Donald Trump announced in a speech at the Department of Health and Human Services (HHS) a new proposal to cut drug costs for patients by aligning prices for medications under Medicare with international prices.

The proposed rule includes a new payment model, called the International Pricing Index (IPI), which would lower costs for Medicare Part B drugs by resetting Medicare payments based on international prices and introducing competition, according to HHS.1 The proposed rule would cover most of the medications in Part B, including physician-administered drugs such as infusions.

Overall, HHS projects that the plan would provide a total of $17.2 billion in savings for American taxpayers and patients, with out-of-pocket savings potentially totaling $3.4 billion over 5 years.2

“We’re taking aim at the global freeloading that forces American consumers to subsidize lower prices in foreign countries through higher prices in our countries,” President Trump said in the speech.3

If implemented, Medicare would set payments for these drugs based on the discounts drug manufacturers give other companies. According to HHS projections, the total payment for these drugs would drop 30%.2

Additionally, the IPI model would create a system that allows private vendors to negotiate drug prices directly with manufacturers and supply them to physicians and hospitals. Instead of the current percentage-based add-on payment, physicians and hospitals would receive a set payment amount for storing and handling medications that would not be tied to high drug prices.1

HHS detailed the goals of the IPI model in a press release:1

  • Reduce costs for Medicare beneficiaries and thereby increase adherence and access.
  • Introduce competition to the system of paying for physician-administered drug inventories so physicians can focus on patient care.
  • Reduce providers’ burden and the financial risk associated with managing drug inventories for higher drug prices.
  • Address the disparity in drug prices between the United States and other countries.
  • Reduce costs to American taxpayers and Medicare beneficiaries who fund these programs.

“In an era where the pharmaceutical industry is pricing drugs at levels approaching a million dollars—and jeopardizing the future of our safety net programs–the time has come to fix the perverse incentives in the Medicare program that are fueling price increases,” Centers for Medicare and Medicaid Services (CMS) Administrator Seema Verma, said in a statement.1

The Pharmaceutical Research and Manufacturers of America (PhRMA) issued a statement opposing the plan, countering that the proposed changes would affect patient access.

“The proposed Medicare Part B model would jeopardize access to medicines for seniors and patients with disabilities living with devastating conditions such as cancer, rheumatoid arthritis, and other autoimmune diseases,” Stephen J. Ubl, president and CEO of PhRMA, said in the statement.4 “The administration’s proposal will also hinder patient access by severely altering the market-based Medicare Part B program by reducing physician reimbursement and inserting middlemen between patients and their physicians.”

HHS noted that the model would be phased in over 5 years in only half of the country, with the opportunity to scale up over time.1 According to CMS, the proposed IPI model would start in spring 2020. Over the course of the model, CMS would monitor and evaluate the impact of the model on beneficiary access to drugs, program costs, and the quality of care for beneficiaries.5


  • HHS Advances Payment Model to Lower Drug Costs for Patients [news releases]. HHS’ website. Accessed October 25, 2018.

  • What You Need to Know about President Trump Cutting Down on Foreign Freeloading [news release]. HHS’ website. Accessed October 25, 2018.

3.Remarks by President Trump on Prescription Drug Prices [news release]. White House website. prices/. Accessed October 26, 2018.

4.PhRMA Statement on HHS Speech and Part B Proposal [news release]. PhRMA’s website. Accessed October 25, 2018.

  • ANPRM International Pricing Index Model for Medicare Part B Drugs [news release]. CMS’ website. Accessed October 25, 2018.

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