Drug companies should reassess their investment strategy if the Trump administration goes forward with a new proposal aimed at lowering what the government pays for drugs in Medicare Part B, argues a new research report by PricewaterHouseCoopers

The administration has proposed setting Medicare reimbursements for drugs based on the average price the drug fetches globally, or the International Pricing Index. That would result in much lower reimbursement rates, since many high-end drugs sell for much less in other countries. That is largely because in most countries the government-run health care system negotiates directly with drug-makers to set prices.

The effect of the proposed policy, said the report, would be similar to eliminating the exclusivity that drugmakers enjoy before generics are allowed to develop and compete with them.

“The administration's International Pricing Index approach would have these drugs essentially 'compete' with prices paid by foreign governments, even if patent exclusivity remains in effect,” said the report.

Twenty-nine of the top 50 drugs covered by Medicare Part B would be opened up to competition under the new policy, PwC estimates. Part B covers less than 500 drugs, but the top 50 medications account for 83 percent of the overall drug spending and the top 25 account for 65 percent of all spending.

The new policy will likely force companies to rethink their pricing strategy as well as when or whether they will choose to enter new foreign markets.

“Medicare Part B is a small program, but for the companies involved in it, it brings in significant revenues. Companies should assess how much revenue may be at stake for their products, both now and in the future,” said the report.

Just as the policy threatens the profits of drug companies, it offers the prospect of major savings to U.S. taxpayers. Officials for the Centers for Medicare and Medicaid Services have estimated that it would save nearly $18 billion for Medicare Part B and $1.8 billion for Medicaid (due to dual enrollees) between 2020-25.

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An international index would upend drugmakers' pricing strategy

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