The Most Favored Nation Model and Interim Final Rule – What is this?

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The rising costs of physician-administered drugs covered under Medicare Part B is one of the largest drivers of Medicare spend which have risen approximately 11.5% annually since 2015, with a total spend of approximately $30 billion in 20191. Lowering drug cost is essential to maintain Medicare for our aging population.

Lowering drug prices has been part of the outgoing President’s healthcare agenda this past term. As part of the administration’s Blueprint to Lower Drug Prices and Reduce Out of Pocket Costs, which was announced in 2018, aligning drug prices with those available in economically similar countries was one of the key goals of the blueprint. Developing a new drug pricing model under Medicare Part B to index reimbursement for drugs prescribed in the US to drug costs in “economically-similar countries,” is a key component to the MFN (Most Favored Nation) Model. We will look at the components of this rule, impact to key stakeholders, and recent developments.

When the Whitehouse administration reiterated the proposal as part of its Executive Order on “Lowering Drug Prices by Putting America First”, CMS responded by issuing the MFN Interim Final Rule implementing the new payment model.

The Rundown

Drugs in Scope

Medicare Part B drug payment price for the top 50 separately reimbursable physician-administered Part B drugs will be set according to the lowest price available in an index list of foreign countries. The top 50 Medicare Part B medications would include high-cost injectable biologics for rare diseases, oncology medications, and immunology products. The list will exclude certain types of drugs such as certain vaccines (including COVID-19 vaccines), oral drugs, multiple source drugs, and intravenous immune globulin products. CMS will make changes to this drug list annually to include drugs that rise to the top 50 drugs based on updated annual Medicare Part B spending.

Payment Model

CMS will test an alternative payment model that will be based on global prices and include a flat add-on amount for each dose as opposed to the current Medicare Part B payment system which pays the manufacturer’s reported average sales price (ASP) plus 6 percent of the ASP as an add-on amount. The MFN price (the lowest adjusted international price) will be phased in. It will blend in with the current reimbursement rate of average sales price (ASP) plus six percent over the course of the first four years of the 7-year Model—starting at 25 percent MFN price and 75 percent “ASP plus six percent” in year one and progressing by 25 percent each year until it is 100% MFN price in year four. The flat add-on amount will be consistent for each Model drug, starting with a reimbursement of $148.73 per administration in Q1 of 20211. This payment model removes financial incentives to use more expensive drugs to get increased margins.

Participants

The MFN Rule will be mandatory for Medicare-participating physicians, non-physician practitioners, supplier groups such as group practices, ambulatory surgical centers, and hospital outpatient departments. Certain types of hospitals and clinics will not participate in the model (such as cancer hospitals, children’s hospitals, critical access hospitals, rural health centers, federally qualified health centers, and Indian Health Service facilities).

Who Might Get Hit?

It appears the MFN rule would only impact Medicare fee-for-service. Medicare Advantage (MA) payers as well other payers should not be impacted; although by lowering Medicare Part B payments, Medicare Advantage payment rates may also be affected since lower Part B payments would result in lower Medicare expenditures (which are used to benchmark Medicare Advantage payment rates). It is too soon to determine how this rule may impact the healthcare supply chain in the US.

For manufacturers, the MFN Rule would be the beginning of the government regulating drug costs. Focused on the top 50 Medicare Part B agents, which are mainly high-cost biologics primarily manufactured by the big pharma companies, these companies will feel the most impact. How that effect causes a shift in cost to other healthcare channels is yet to be determined.

Providers will be impacted as the MFN payment model will eventually pay a flat add-on amount for each dose of an MFN drug instead of a percentage of each drug’s cost. Historically, reducing provider reimbursement has caused significant pushback and lobbying by the provider community. CMS estimates the new pricing model will result in a 65 percent reduction in Part B drug reimbursement as compared to the current reimbursement model (ASP plus six percent). CMS estimates that, without price concessions from drug manufacturers, providers will be reimbursed below their acquisition costs.

Medicare Part B patients will appear to benefit from reduced out-of-pocket prescription drug costs since lower drug costs would result in lower coinsurance. However, patients may also be negatively impacted by the MFN rule. Provider access may be reduced if providers opt out because of the low reimbursement or if medical offices consolidate. Patients would be forced to get their treatments at other facilities that may not be convenient for them and which may be more costly for the system. We also need to keep in mind that many seniors have supplemental insurance that covers the 20% coinsurance.

The Latest

Implementation was to begin January 1st, 2021; however, several lawsuits have been filed by numerous trade associations and pharmaceutical manufacturers seeking a temporary restraining order and preliminary injunction to stop the Most Favored Nation rule from taking effect. Changing the status quo in healthcare is almost impossible, there is too much waste to go around! On Dec 23, 2020, the US District Court of Maryland issued a temporary 14-day injunction. Soon after, the California court also issued a temporary injunction blocking implementation until completion of the public notice and comment period, which will expire January 26, 2021. As President-elect Joe Biden prepares to assume office later this month, the fate of the outgoing administration’s MFN rule for bringing down prescription drug prices is unclear. It may go away indefinitely if the new administration decides not to pursue it any longer.

Thoughts

As drug prices and patient out-of-pocket costs continue to soar, lowering drug prices have been a focus of the current President’s administration and would likely continue to be a focus for the incoming administration. It is necessary to rein in costs to improve patient access and outcomes, but it’s complicated. One of the main parts of the lawsuits asserts that the MFN Model Interim Final Rule was finalized using an abbreviated regulatory process which did not allow enough time for all stakeholders to weigh in. There are many stakeholders that would be affected and systems that are intertwined. While lowering drug prices is important, the process should not be rushed. The government and/or the private sector needs to ensure patient access to critical therapies would not be disrupted and understand the impact this will have for the rest of the healthcare stakeholders and connected systems before overhauling the Medicare Part B drug pricing system. Drug prices needs to be controlled, but this rule seems to put much of the burden on the provider and ultimately the patient.

References
  1. gov. 2021. FACT SHEET: Most Favored Nation Model for Medicare Part B Drugs and Biologicals Interim Final Rule With Comment Period | CMS. [online] Available at: <https://www.cms.gov/newsroom/fact-sheets/fact-sheet-most-favored-nation-model-medicare-part-b-drugs-and-biologicals-interim-final-rule> [Accessed 5 January 2021].
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