Comments to CMS on the Proposed “International Pricing Index” (IPI) Model

By at 31 December, 2018, 9:45 am

Centers for Medicare and Medicaid Services

U.S. Department of Health and Human Services

7500 Security Blvd.

Baltimore, MD 21244-1850

Via Electronic Submission:

Re: The Center for Medicare and Medicaid Services (CMS) Proposed Rule – Medicare Programs: International Pricing Index Model for Medicare Part B Drugs (CMS – 5528-ANPRM)


Dear Sir/Madam:

The Small Business & Entrepreneurship Council (SBE Council) is pleased to present these comments on the proposed International Pricing Index (IPI) Model for Medicare Part B Drugs. As consumers, innovators, investors, employers and risk-takers, our nation’s entrepreneurs will be negatively impacted by a drug-pricing model that features the use of price controls at its core. In this case, the proposed IPI model incorporates foreign drug prices controls, which would impose serious harm and constraints on the innovative capacity and competitiveness of America’s biopharmaceutical industry, and in turn the life-saving drugs this critical sector develops and brings to market.

Background: Markets Not Mandates

SBE Council is a nonprofit, nonpartisan advocacy, research and education organization dedicated to protecting small business and promoting entrepreneurship. For twenty-five years, we have worked on a range of issues and initiatives to strengthen the ecosystem for small business growth and entrepreneurship. Health care reform has remained a core SBE Council issue since our founding in 1994. Unfortunately, high costs and access to health care and health coverage have remained long-term challenges for small business owners and the self-employed.

SBE Council strongly promotes policies and practices that strengthen competition, investment and innovation, as this activity has led (and will lead) to transformative changes that improve health care access and the quality of our nation’s health care system. The market – rather than government mandates – has proven to be far more superior and capable of producing a health care system that is responsive to the needs of consumers.

The focus on markets, competition, and innovation is why SBE Council has supported numerous regulatory initiatives advanced by the Department of Health and Human Services (HHS) to bring small businesses and their employees more affordable choices in health coverage. As we have seen with government mandates imposed on our health care system over the years (and most recently through the Affordable Care Act), intrusive regulation reduces choice, access and competition, and drives costs higher. The freeing of regulatory constraints, as advanced by Association Health Plans and Short-Term-Limited Duration Plans, for example, will allow the market and innovative market forces to better create health coverage options based on the preferences of small business consumers and their employees rather than government bureaucrats or elected politicians.

SBE Council and our members are also highly supportive of forthcoming changes to health reimbursement accounts, as these proposed changes will provide small business owners with a practical solution to offer health coverage for existing employees, as well as being able to provide/expand this benefit to ensure they can compete for workers in this very tight labor market.

Government barriers and red tape also erect barriers for entrepreneurial firms that offer solutions in response to pervasive challenges in our health care system. These firms serve as a competitive check to larger firms through their disruptive innovations, use of advanced technology, and bold thinking and actions. The bio-pharmaceutical industry especially needs these small firms within their ecosystem, as they are a source of dynamism and competition.

Proposed IPI Model Harms U.S. Innovation, Investment and Drug Industry Dynamism

The proposed IPI model runs counter to the reforms, initiatives and policy practices that SBE Council has advocated for and advanced over its 25-year history. The proposed model would establish a harmful framework that undercuts the benefits of the free-market system, which has made the United States the world’s leader in producing innovative, life-saving medicines and therapies.

Of course, entrepreneurs and small business owners want lower prices for their medicines (and all health care for that matter), but the adoption of a payment model that essentially absorbs the arbitrary and market-distorting policies of foreign countries is far too much of a cost to bear in terms of the impact on access, innovation and the economy.

Price controls have never worked and have consistently imposed harmful effects whenever and wherever they have been deployed. The distortions produced by price controls harm investment, competition, lead to shortages, and again hurt innovation. With regard to the proposed IPI model, the adoption of such a plan will disrupt the flow of investment, drug availability and overall incentives to innovate and produce new drugs and therapies. Innovation is a very expensive undertaking, as it requires, on average, 10 years and $2.6 billion in precious time and capital to develop a Federal Drug Administration-approved drug (Tufts Center for the Study of Drug Development.)

As it is, many small pharmaceutical companies are burdened and discouraged by government red tape, and adding a restrictive price-control regime (as proposed by the IPI) to this mix would add uncertainty and disproportionate costs to these innovative companies. Limiting the potential returns of these risk-taking companies will vastly harm investment, research and innovation.

Please remember, the biopharmaceutical industry is not just about big business. Among pharmaceutical and medicine manufacturing firms, 57 percent have less than 20 workers, 79 percent less than 100 workers and 91 percent have less than 500 workers (U.S. Census Bureau data, 2017). This critical industry is all about risk-taking entrepreneurs. Government barriers and dictates, as embedded within the IPI model, will discourage this activity. In the end, this will harm health consumers and patients, and the dynamism and growth of the U.S. economy.

Limit Government Harm: More Freedom and Innovation

America Cannot Become a “Price-Control Partner”

The response to “freeloading” foreign nations that utilize price controls for drugs is not to throw in the towel and adopt their policies as our own. Indeed, these price controls allow foreign countries to take full advantage of the massive American investment and know-how that goes into producing cutting–edge, life-saving drugs with limited risk-taking on their end. Indeed it is extraordinary that America’s biopharmaceutical industry invests massive amounts of capital into drug development – nearly $90 billion in 2016, according to Research America (U.S. Investment in Medical and Health Research and Development 2013-2016, Fall 2017.) However, American consumers and our health care system end up shouldering most of the cost of this innovation even though the benefits are global.

The Trump Administration has the power to alter this dynamic by working to change the policy behavior of foreign countries through trade negotiations and deals. Just as U.S. trade negotiators are currently responding to intellectual property (IP) theft and the unfair trading practices of some of our trading partners through talks and potential deals, it can do the same on the cost-distorting issue of drug price controls. Canada, Japan and the EU, for example, pay far less for drugs due to price controls on the many drugs that U.S. private-sector companies pump billions and billions into developing. According to a report by the White House Council of Economic Advisers (Reforming Biopharmaceutical Pricing at Home and Abroad, February 2018), while the U.S. accounts for approximately 30 percent of the developed market for drugs, we pay for about 70 percent of the costs.

Pursuing trade deals and agreements that require countries to reform their price control regimes, open markets further by lowering barriers for our pharmaceutical industry, and protecting IP will create a more equitable playing field and lower prices for all. At the same time, our trading partners and all countries need to focus on creating stronger frameworks on IP rights and protections, and advancing tax and regulatory reforms that encourage investment, entrepreneurship and innovation. These are the strategies that will enable an ecosystem that supports and encourages innovation and strong economic growth.

America’s pharmaceutical industries are working hard on developing medicines and therapies that improve and save lives. Imposing – and in this case, importing – the bad ideas of other countries via price controls places this incredibly important work in peril. SBE Council urges CMS to pursue policies that encourage innovation and investment, and cast aside those that will be harmful to the U.S. pharmaceutical sector and health care consumers. SBE Council strongly urges CMS to discard its proposed IPI model, as the harm would be too great for our economy and America’s health care system.

Respectfully submitted,

Karen Kerrigan, President & CEO

SBE Council

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