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Answering Your Questions about the IPI Drug Pricing Model | HHS

How will this model affect patient access? Could this change my Medicare benefits?

The IPI model does not include any restrictions on patient access or choice of drugs. This stands in marked contrast to proposals that would impose formularies in order to negotiate down drug prices. Given the size of the U.S. drug market and the fact that the U.S. will continue to pay 126 percent of what other countries pay, we believe manufacturers will be motivated to support the model.

If HHS believes in this proposal, why is it only being implemented in half the country?

This is a significant shift in how Medicare pays for these expensive drugs, and the administration wants to go about it in a deliberative process, taking into account the concerns of all stakeholders involved.

The size of the model and its gradual schedule for implementation gives manufacturers time to adjust their global pricing strategy as they wish, driving changes to their business model but not on an unrealistic timeframe.

The model is also being rolled out for half of hospitals and physicians, and gradually implemented, so that the various effects of the model —such as on drug prices, quality of care received, and patient adherence to medications—can be monitored and evaluated.

As the model is implemented, there is potential to scale it up further. Moreover, as payments within the model are reduced, the average sales price Medicare pays will drop, reducing what patients outside the model owe.

Is this a free-market model in keeping with the U.S. system that has served patients so well—or is it freeloading off of socialist price-setting systems?

The model replaces an artificially high price point currently used in the program—an average of what all private payers in the U.S. pay for a drug, the average sales price or ASP—with a more rational price point, between that average of private payers and the average of what foreign governments pay for these drugs.

Today, other countries use a variety of means to negotiate down prices, including “reference pricing,” which sets the price a government will pay based on what peer countries pay.

As pointed out in the President’s American Patients First drug-pricing blueprint, when the United States runs a reimbursement system without any meaningful way to obtain discounts on certain drugs, reference-pricing systems can continually drive prices down in other countries while manufacturers’ profits are supported by U.S. prices.

But under the IPI model—which uses other countries’ prices to calculate U.S. prices but does not aim to match them—all wealthy countries would now be using competitive models for pricing this set of costly drugs. The pharmaceutical industry would finally be pressured to fairly allocate the burden of funding innovation across wealthy countries.

The model will also boost free-market competition through its two other prongs: removing incentives created by the current Medicare payment system that encourage prescribing of expensive drugs and removing government barriers that prevent private-sector vendors.

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Answering Your Questions about the IPI Drug Pricing Model | HHS.gov.