In 2018 the Trump administration proposed a change to reimbursement for physician-administered drugs covered by Medicare Part B. The proposal utilizes external reference pricing (ERP), tying the price Medicare will pay to a weighted average of prices in 16 wealthy nations. Our goal was to compare this approach with other price metrics currently available in the US that, if adopted, may lessen concern about pressure on ex-US prices.

We identified the unit cost currently paid for the top 27 Medicare Part B drugs in 2018q3, the average sales price (ASP). We then collected aggregate ERP data from the countries in the proposal. Finally, we identified two alternative price metrics, the Veterans Affairs Federal Supply Schedule (VA) which is the price negotiated by a different large federal insurer and the Value-Based Price Benchmark (VBP) based on cost-effectiveness models from the Institute for Clinical and Economic Review (ICER) at a WTP of $150,000/QALY. We compare the prices from each metric and speculate about their comparative advantages.

Unit cost for ASP, ERP and VA were found for all 27 drugs and of these, eight had a reported VBP in an ICER report. On average the ERP as a percentage of the ASP is 51% ranging from 12%-102%. Comparing the VA price to ASP we find the average percentage is 66% (25%-79%). Finally, the percentage of the VBP for the eight drugs was 60% (42%-76%).

While adopting the ERP would have the immediate effect of substantially reducing Medicare spending on physician-administered drugs, it would likely impact the price paid around the world. Further, based on the comparison with the VBP it appears that the ERP may not align with value in the US context. Utilizing the VA price would reduce spending less than with the ERP, but would likely exert pressure on VA prices.