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  • Katie Rapp

Understand your risk: International Pricing Index and Medicare Part B

Interview with Bertrand Tardivel

Last week, the Trump administration unveiled a new proposal that aims to reduce reimbursement for medicines administered to seniors under the Medicare Part B benefit to an amount pegged to the average price paid in foreign industrial nations. It would link U.S. prices to an International Pricing Index (IPI) based on sixteen other countries.

The IPI approach is comparable to the International Reference Pricing (IRP) system employed today by more than 60 countries globally. It’s a move that could entirely reshape the way the pharmaceutical and biotechnology industries think about their business model in the U.S.

As pharma companies organize around how to push back against the IPI proposal, it’s vital to understand the potential risk the IPI poses to each individual brand and organization.

Bertrand Tardivel, Head, Global Pricing and Market Access, Archbow Consulting

I sat down with Archbow’s global pricing expert, Bertrand Tardivel, to try to better understand how the IPI could potentially impact our clients. Bertrand worked for 16-years in commercial analytics leading global pricing with pharma organizations before joining the Archbow team. Learn more about Bertrand here.

Archbow Consulting (AC): Bertrand, you’ve been working with International Reference Pricing for several years. From what we know so far, how does the IRP compare to the IPI?

Bertrand Tardivel (BT): I believe the IPI and IRP have similar goals, but very different approaches. IRP is a set of mechanisms by which a payer fixes the price of a pharmaceutical product on the basis of the published price for the same product in other countries. IPI, as described in the Advance Notice of Proposed Rulemaking (ANPRM) issued by CMS, seems to be more of a budget-containing measure that aims to allocate overspend on the basis of the price deviation between the Medicare Part B price and a composite of international prices.

AC: How does IRP work?

BT: IRP is based on the product: an IRP review happens product by product. In most cases, IRP rules are quite formal with governments providing comprehensive explanations of which prices from other markets they consider (the reference basket) and how they use them. The referencing country collects the prices of the product in each country of the reference basket and derives their own price by applying a mathematical operator. The most common IRP practices consider the average of the prices in the basket, the lowest of the basket, or the average of the three lowest in the basket. The result is totally independent of other products. The price of an oncology drug in Greece, for instance, depends on the price of this very same drug in the countries referenced by Greece. The price of other oncology products in Greece is not factored.

AC: How does that differ from the IPI approach?

BT: The IPI approach is significantly more sophisticated. The suggested methodology includes four steps:

  1. Calculate the Medicare price (per gram) and the international price (per gram), both based on weighted averages in order to capture pack presentation mix for the Medicare price and both the presentation mix and the country sales mix for the international price.

  2. Derive the IPI by dividing the Medicare spend by sales at the international price (volumes consumed under Medicare Part B multiplied by the international price for each product).

  3. Adjust the IPI by a factor corresponding to a target of lowering the Medicare Part B spend related to this pool of products (in the CMS document, 30% seems to be the target).

  4. Apply the revised IPI factor to each international price in order to determine the Target Price (TP) of each product. The price of products with an ASP lower than the TP will not be not impacted.

Let’s consider products A, B, C, D, E, and F from the IPI perspective. The proposed approach would suggest the following outcomes (this example is a preliminary understanding only for illustrative purposes as the guidance is not finalized, and some steps remain vague):

The big takeaway in this example is that the greater the difference is between the Medicare price and the international price, the more the price of the product is impacted.

The model proposes a progressive phase-in which will somewhat limit the impact:

AC: What are the potential risks of the proposed IPI for pharma and biotech manufacturers?

BT: IRP has been an important price erosion driver outside of the U.S. But now, an international price change will also have potential consequences on the Medicare Part B price. The 16 listed countries will require closer monitoring for impact as prices change, as will other countries that are referenced by the IPI 16. A price change in the Netherlands (not among the 16 retained countries) could impact the price of Greece and Austria through their respective IRP processes, and therefore eventually be reflected in the IPI.

With a suggested quarterly update of the IPI, we can foresee consistent decreases of the Target Price. It will also expose Medicare prices to FOREX risks, with referencing prices in a variety of currencies (EUR, CAD, JPY, CZK, GBP, SEK, etc.)

It’s safe to say that if the proposed IPI is approved, there will be a need for reviewing pricing governance and adjusting processes and systems.

AC: What can you tell us about the tools available to simulate IRP and IPI impact? Can they help manufacturers understand their unique exposure and risks?

BT: There are several solutions on the market for managing IRP, but nothing that I am aware of for IPI. IPI and the impact on the price of a specific product require far more data. As long as we do not know if this approach will be approved, it is a better decision to conduct an early ad hoc assessment (working with different moving assumptions). Being prepared for the eventual outcome is key. Fortunately, that is an area where our team is poised to help.

It is also important to note that CMS will collect feedback until December 31, 2018, and that while the industry should lobby for a less controlled approach, companies should also raise concerns and propose modalities to shape the final solution. The 60-page ANPRM contains a significant list of items open for discussion. It is in the highest interests of concerned companies to provide their views on some of these points in order to minimize impact.

As the proposed Medicare Part B changes continue to progress through to possible approval, it’s vital for each brand and organization to be proactive in fully comprehending what’s a stake. Archbow Consulting can help. Contact us to today to engage Bertrand for an IPI analysis specific to your product(s).


Archbow Consulting helps pharmaceutical and biotech companies in the USA and Europe design, build, and optimize product distribution and patient access strategies. Archbow was founded by industry veterans to meet a need in the marketplace for consulting options that offer diverse real-world experience, are able to leverage deep connections across the industry, and can also provide actionable strategic guidance. We invite you to learn more about our team, services, and clients’ success, and connect with us via email, LinkedIn, Twitter or subscribing to this blog which you can do below.

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