Medicare pays a market-based rate for Part B medicines. Average Sales Price (ASP) is a market-based price that reflects the weighted average of all manufacturer sales prices and includes all rebates and discounts that are privately negotiated between manufacturers and purchasers (with the exception of Medicaid and certain federal discounts and rebates). This methodology allows the government to benefit from discounts negotiated on physician-administered drugs in the commercial market.
Spending on Part B medicines represents a small and stable share of overall Part B spending at only 8 percent. Recent research found the volume-weighted average sales price for Part B drugs has remained steady year over year, suggesting that prices for prescription medicines and biologicals are not a key driver of program costs. This is in part because Medicare Part B benefits from brand and generic competition, as well as negotiation by commercial payers.
There have been a number of proposals to alter the Part B program that would put patients at risk. In 2018, the Department of Health and Human Services (HHS) released an Advance Notice of Proposed Rulemaking, referred to as the International Pricing Index Model, that suggests using the Center for Medicare & Medicaid Innovation (CMMI) to test a mandatory demonstration that would set U.S. prices for medicines covered under Part B based on prices set by 14 foreign governments. The countries that would be referenced in the model use a range of arbitrary techniques to artificially lower prices below market rates, often resulting in severe access restrictions for patients. For example, patients living in the countries referenced by HHS have, on average, access to only 55 percent of new cancer medicines, compared to access to 95 percent in the United States.
In the midst of conversations about changing Part B, it is important to take a step back and reflect on areas where Medicare has gotten it right and the Average Sales Price system is a prime example. It is also important to recognize that changes to Part B could lead to serious, unintended health consequences for Medicare beneficiaries.