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International Pricing Index for Medicare Part B Drugs | The Incidental Economist

The Centers for Medicare & Medicaid Services (CMS) has proposed the International Pricing Index (IPI) model as a way of addressing the rising costs of prescription drugs for Medicare beneficiaries. What is it and how would it work? First some background:

How is Medicare’s drug coverage currently structured?

Medicare offers prescription drug coverage to its beneficiaries in two of its four parts: Part B (provider-administered drugs) and Part D (self-administered drugs). Though IPI would apply only to the former, it’s worth putting it in the context of all of Medicare drug coverage and spending, including Part D.

The optional Part D covers self-administered prescription drugs. It does not include over the counter (OTC) drugs or weight loss/gain treatments. Part D drugs are paid for by private insurance plans that negotiate prices with drug manufacturers (or contract with pharmacy benefit management organizations to do so on their behalf). Medicare is prohibited from interfering with any price negotiations.

Since Part D’s implementation in 2006, there has been a tenfold increase in Medicare’s pharmaceutical spending, which is due to the rise of high cost specialty drugs in the market. (Specialty drugs are those with a negotiated price of $670 or more per month.) It is estimated that two thirds of all Part D spending will soon be due to these drugs.

Medicare Part B is also optional. It covers, among other things, prescription drugs administered in hospital settings and those delivered via durable medical equipment, such as nebulizer treatments. Part B also covers certain outpatient drugs such as flu and pneumococcal vaccinations. For the few outpatient drugs covered by Part B, Medicare requires the beneficiary pay 20% of the approved price.

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International Pricing Index for Medicare Part B Drugs | The Incidental Economist.

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