There is one drug-price policy that Republicans and Democrats can agree on: international reference pricing.

Leaders from both parties have proposed the model, but with some differences. President Donald Trump has floated the idea several times and, under his administration, the Centers for Medicare and Medicaid Services is exploring a pilot program.

Last month, Speaker of the House Nancy Pelosi unveiled her drug pricing plan, which included a similar proposal. Her bill would create a maximum price for negotiations, called the average international market (AIM) price.

It’s an idea that works around the world. Nearly every member of the European Union uses some kind of international reference pricing model. Countries such as Australia, Brazil, Canada, Japan, New Zealand and South Africa also employ it to set prices for their government healthcare systems.

In both proposals, a drug’s price would be based on the average cost in several countries. That price would then become the benchmark for U.S. prices. 

The proposal has floated to the top because it’s fairly simple to understand. For politicians trying to gain public support, a model that the average person can digest is more likely to be supported, experts say. 

“It’s demonstrating very clearly that the U.S. is paying more than it should for many of these prescription drugs, and one way to bring down the prices of drugs here would be to peg what we pay to the prices paid by other similar countries,” says Rachel Sachs, associate professor of law at Washington University of St. Louis. “That’s not just easy to understand for most people, but it’s also an effective strategy that other countries have already used to lower their own prices. That’s why you see interest in this proposal.”

For once, the two parties seem to agree. But turning these proposals into law is still a massive hurdle. 

“The devil’s in the details of trying to operationalize [these proposals] from a legislative perspective,” says David Henka, CEO of ActiveRadar, a company specializing in pharmacy cost reduction programs for employers, trust funds and health plans. “Is the U.S. going to start capping what they’re going to pay for certain drugs? There’s an awful lot of lobbying activity from stakeholders in this space, including the pharma companies, that will have a say in this matter. I’m not saying it can’t be done. I’m saying it’s easy to agree on a concept, but it’s a lot more difficult to get that legislation passed.”

In fact, while these proposals are based on similar ideas, the details are quite different, Sachs says.

I’m not saying it can’t be done. I’m saying it’s easy to agree on a concept, but it’s a lot more difficult to get that legislation passed.

David Henka, ActiveRadar

For example, the CMS proposal only applies to a subset of Medicare Part B drugs, meaning its effect on overall prices, and even Medicare overall, would be limited, Sachs explains.

Pelosi’s bill would have wider reach. It would apply the average international price across Medicare, Medicaid and private insurance. That bill also comes with other price-control methods such as allowing Medicare to negotiate and limiting price hikes to the rate of inflation.

In general, reference pricing is typically an effective way to lower prices, says Henka, whose
company ActiveRadar provides a reference pricing program to employers.

That program works to find the lowest-cost version of a commonly prescribed drug and makes that price the “benchmark” for drugs in the same class, he explains.

“The idea is that the lowest cost drug would become the benchmark, and all the other [more expensive] drugs are available on a formulary or for a physician to prescribe, but the member would just pay the difference between the benchmark drug and the higher cost drug,” Henka adds.

In October, the Congressional Budget Office, a nonpartisan agency that conducts analysis of legislation, said Pelosi’s drug pricing bill would save $345 billion over a decade, with most of the savings from the bill’s provision that would allow Medicare to negotiate drug prices.

Sachs says the CMS proposal seems less likely to provide these kind of savings, due to its smaller scale and the lack of teeth to the proposal.

“The administration has said this proposal will save money and that it won’t limit patient access to drugs,” Sachs explains. “But it’s really hard to see how both of those can be true under the system they’ve set up right now. Medicare Part B can’t refuse to pay for a drug if it’s price is too high. There’s no mechanisms for them to reject [the price]. My question is what compels the pharmaceutical company to accept the international reference price? There’s no stick.”

There’s division among the GOP on the CMS idea: A number of Republican senators voted to reject the CMS proposal in July, with Sen. Pat Toomey (R-PA) arguing it is “importing foreign price controls.”

While lawmakers are negotiating this proposal, the pharma industry is working to derail it. Drugmakers say basing U.S. prices on an international scale would stifle innovation and new drug research, among other threatening problems such as losing R&D jobs and limiting patient access.

“We should not give foreign governments the power to set U.S. prices and determine access to medicines for Americans,” explains PhRMA spokesperson Holly Campbell. “In every country where the government sets the prices for medicines, it has resulted in less access to medicines for patients. That is why American patients have access to nearly 90% of new medicines compared to just 50% in other developed countries.”

Instead, the industry is pushing for other methods to lower prices, such as increasing generic and biosimilar competition and decreasing out-of-pocket costs, policies the pharma industry has historically supported.

“Rather than import flawed policies from other countries, we should lower costs for Americans through policies that lower out-of-pocket costs, increase competition in the market and level the playing field so other countries pay their fair share,” Campbell says.

nancy pelosi
Speaker of the House Nancy Pelosi has proposed a drug pricing plan that would create a maximum price for drug negotiations.

Analysts from investment bank Height Capital Markets said in an October note that Pelosi’s bill could pass the House, but would be “dead on arrival” in the Republican-controlled Senate. The CMS proposal has also stalled. The agency was accepting comments on the international pricing index demonstration through the end of December 2018, with plans to release a proposed rule in the first half of this year, but that proposed rule has not been made public.

Sachs notes that time may be running out to even implement the administration’s proposal.

“At this point, it is too late for that proposal to take effect in 2020 and it’s possibly too late for it to take effect in 2021,” she explains. “Maybe the administration now feels less urgency to move it forward because they won’t be able to demonstrate benefits before the next election.”

Even if these proposals go into effect, Henka notes the complexity of the U.S. healthcare system could leave room for loopholes.

“The employer or the government is the one who’s actually paying the cost and [the patient] has no idea how much it costs,” Henka says. “There’s enough room for shenanigans in the way that system is created to allow even the most well intended benchmarking plan to get derailed somewhere.”