On Friday, November 20, 2020, United States President Donald Trump and the Centers for Medicare and Medicaid Services (CMS) announced the long-awaited seven-year Most Favored Nation (MFN) model, issued as an interim final rule. The interim final rule will start to phase in almost immediately, with the first performance year starting on January 1, 2021. The model will be phased in over four years, with reimbursements to providers for MFN drugs beginning as a blend of the current average sales price (ASP) methodology and the MFN price. Reimbursement for the first year will consist of 25 percent the MFN price and 75 percent ASP and the share of MFN price will increase 25 percent per year, with years 4-7 being 100 percent the MFN price.
What Does This Mean?
The MFN model focuses on the top fifty separately payable, physician-administered Medicare Part B (not Part D) drugs with the highest annual spending (as identified by the HCPCS codes). The MFN Model payments will apply only to MFN Model drugs when these drugs are administered by MFN participants to MFN beneficiaries and Medicare Part B allows separate payment as the primary payer. The first year’s list of MFN Model drugs were identified by CMS based on annual Medicare Part B spending in 2019, excluding certain types of drugs and spending on drugs used at home. CMS is also excluding Part B drugs given in the inpatient setting, administered through covered durable medical equipment (DME), orally administered or paid under the End-Stage Renal Disease Prospective Payment System (ESRD PPS).
MFN prices will be calculated by adjusting each comparator country’s average price per unit for covered drugs to normalize by GDP per capita. Only OECD countries with GDP per capita of at least 60 percent of the U.S. GDP per capita will be included. The lowest price among comparator countries will be the MFN price. If an MFN drug is in shortage by the FDA or if there are no international sales, volume, or pricing information available for a certain drug, the payment amount will default to ASP. The MFN cannot exceed ASP.
The MFN model changes the reimbursement for applicable Part B drugs and does not make any changes to the buy-and-bill system, though financial hardship exemptions do exist for providers. In addition, MFN drugs will be subject to a single alternative add-on payment — not the six percent add-on currently used for Part B drugs — that will not vary among drugs. The add-on payment will be equal to 6.112 percent of 2019 spending for the MFN drugs as a whole and will be increased at the rate of inflation.
Participation in the MFN model is mandatory for:
(1) Medicare-participating physicians and non-physician practitioners,
(2) group practices,
(3) hospital outpatient departments (HOPDs) including 340B covered entities,
(4) Ambulatory Surgical Centers (ASCs), and
(5) other providers and suppliers that receive separate Medicare Part B fee-for-service payment for the model’s included drugs, such as home health agencies.
However, certain types of hospitals and clinics will be excluded from the model, including:
(1) cancer hospitals,
(2) children’s hospitals,
(3) critical access hospitals,
(4) rural health centers,
(5) federally qualified health centers,
(6) community mental health centers, and
(7) Indian Health Service facilities.
The model will last for seven performance years, beginning January 1, 2021 and ending December 31, 2027. As noted above, the model phase-in over the first four performance years by blending the MFN Price with the applicable ASP to allow MFN participants time to adjust to the model payment amounts and processes. The MFN Price will be phased in at 25 percent per year for years 1-4, and then continue at 100 percent of the MFN Price for years 5-7. However, CMS will accelerate the phase-in of the MFN Price for a drug if United States prices rise faster than both inflation and the MFN Price. Similarly, once the MFN Price is fully phased in in years 5-7, CMS will adjust downward the MFN Drug Payment Amount if United States prices rise faster than both inflation and the MFN Price.
What’s Next?
While Part D was not included in the interim final rule, CMS Administrator Seema Verma said today that the agency is “currently developing something on that and you’ll hear more about that later.”
While the rule does go into effect immediately, as CMS has waived the implementation delay typically allowed for after finalization, it is likely that we will see challenges to the implementation. For one, as an interim final rule with a comment period, it will be open for comment 60 days after publishing in the Federal Register. As the rule is scheduled to be published on November 27, President-elect Joe Biden will have taken office by the time its comment period closes at the end of January 2021. This window may provide an opening for the new administration to make changes to the rule or stop it altogether.
It’s also relevant to note that while interim final rules may be issued without first proposing a rule if the agency finds good cause that notice-and-comment procedures are impracticable, unnecessary, or contrary to the public interest, it is likely that stakeholders affected by the rule will challenge the decision to circumvent notice-and-comment rulemaking procedures in court. In this case, CMS waived notice-and-comment procedures to release this policy as an IFR, finding “that there is good cause to waive the notice and comment requirements … because of the particularly acute need for affordable Medicare Part B drugs now, in the midst of the COVID-19 pandemic.” The agency also found a delayed effective date to be contrary to the public interest for the same reasons.
Reactions to the Rule
“The current system creates incentives for drug manufacturers to price Medicare Part B drugs as high as they can in the U.S. system,” said CMS Administrator Seema Verma. “The program pays doctors more when they prescribe more expensive drugs, even when a lower cost, clinically-equivalent alternative is available. The Most Favored Nation Model will lead to lower drug prices for seniors.”
Wayne Winegarden, director of the Pacific Research Institute’s Center for Medical Economics and Innovation, opposes the rule, saying, “The most favored nation proposal is terrible policy. It is a back door way to implement price controls, and price controls will reduce patients’ access to drugs today and diminish our access to innovative new drugs tomorrow. Ultimately, patients will pay very high costs. The lack of access to drugs will lead to lower health outcomes and, ironically, higher overall healthcare spending as the need for higher cost surgeries and hospitalizations will increase.”
PhRMA president and CEO Stephen J. Ubl also opposes the rule, releasing a statement saying, “It defies logic that the administration is blindly proceeding with a ‘most favored nation’ policy that gives foreign governments the upper hand in deciding the value of medicines in the United States. History proves that when governments take unilateral action to set prices, it disrupts patient access to treatments, discourages investment in new medicines and threatens jobs and economic growth.” He continued on, indicating that PhRMA will be one of the roadblocks to implementation of this rule, “PhRMA is considering all options to stop this unlawful onslaught on medical progress and maintain our ability to win the fight against COVID-19.”