Administration Releases Most Favored Nation Drug Pricing Model; Cuts Rebate Safe Harbor Protections Under Medicare Part D

November 20, 2020

The Centers for Medicare & Medicaid Services (CMS) today released the Most Favored Nation (MFN) Model Interim Final Rule with Comment Period (IFC). The MFN Model would be mandatory, last for seven years (January 1, 2021 – December 31, 2027), and initially affect 50 drugs reimbursed under Medicare Part B. The public comment period ends 60 days after publication of the IFC in the Federal Register. The Administration has floated this concept multiple times and the Association for Clinical Oncology (ASCO) has vigorously objected each time. ASCO continues to oppose any imposition of a mandatory demonstration model on oncology practices and is deeply concerned about this model’s potential impact on patients and providers. 

Participants – Mandatory MFN Model participants include all Medicare physicians, non-physician practitioners, supplier groups (such as group practices), hospital outpatient departments (including 340B covered entities), ambulatory surgical centers, and other providers and suppliers that receive separate Medicare Part B fee-for-service payment for the model’s included drugs. Cancer hospitals, children’s hospitals, critical access hospitals, rural health clinics, federally qualified health centers, and Indian Health Service facilities will not participate.

Included Drugs – The MFN Model currently focuses on a set of approximately 50 Medicare Part B drugs that encompass a high percentage of Medicare Part B drug spending. CMS will add drugs to the model annually to include drugs that move into the top 50 drugs based on updated annual Part B spending, after applying certain exclusions. Drugs already included in the model will remain in the model, with limited exceptions.

Model Design – Instead of paying for drugs solely based on the manufacturers’ average sales price (ASP), Medicare will pay based on a formula that includes the lowest adjusted international price, (the “MFN Price”) for the drug, which will be based on the lowest GDP-adjusted price paid by an Organization for Economic Co-operation and Development (OECD) member country with a Gross Domestic Product (GDP) per capita (based on purchasing power parity) that is at least 60% of the U.S. GDP per capita, and the ASP.

The MFN Price will be phased-in over the first four years of the model, phasing in 25% per year for years 1-4, and will be 100% of the MFN price for years 4-7. For example, for the first year the phase-in calculation will use 75% of the Average Sales Price (ASP) and 25% of the MFN Price. In years 4-7, the MFN Price will be fully phased-in. However, CMS will accelerate the blending formula for a drug in years 1-4, if U.S. drug prices rise faster than inflation and the MFN Price. The formula will not allow the model payment amount for a drug (before the per-dose add-on) to exceed the ASP.

The current ASP+6% reimbursement for individual drugs will be replaced with a flat add-on payment per dose that is uniform for all drugs in the MFN Model. This was calculated using 6.1224% of 2019 historic spending for the drugs included in the first year of the model. CMS increased the 6% add-on from 2019, to equal 6% post-sequestration prior to calculating the per-dose add-on and applying an inflationary factor for the model start and quarterly thereafter. The per-dose alternative add-on payment amount for the first calendar quarter of performance year 1 would be $148.73. Beneficiary cost-sharing would be waived for the per-dose add-on amount.

Participants in certain other Center for Medicare and Medicaid Innovation (CMMI) models testing fully capitated or global payment for outpatient hospital services for Medicare fee-for-service beneficiaries, including Medicare Part B drugs, are excluded for the first and second quarters of performance year 1 and will continue to be excluded from the MFN Model thereafter as long as those models incorporate savings on Part B drug spending under the MFN Model.

The MFN Model also includes a financial hardship exemption for certain MFN participants whose revenue would be significantly decreased by the model.

Also of note, “TABLE 2” in the MFN IFC lists the drugs that will be included in the model’s first performance year, with HCPCS codes and top billing specialties. “TABLE 8” in the rule lists the estimated impact of the per-dose add-on amount by specialty, based on 2019 claims data.

Read the full MFN IFC and supplemental documentation.

Final “Rebate Rule”

The U.S. Department of Health and Human Services (HHS) also released its finalized “rebate rule,” which removes safe harbor protection for reductions in price in connection with the sale or purchase of prescription pharmaceuticals from manufacturers to plan sponsors under Medicare Part D, either directly or through Pharmacy Benefit Managers (PBMs) acting under contract with plan sponsors, unless the reduction in price is required by law. HHS notes that reductions in price negotiated between manufacturers and plan sponsors—or PBMs—under Part D in the form of upfront discounts, rather than after-sale rebates, are eligible for protection under the new safe harbor for point-of-sale reductions in price for prescription pharmaceuticals.

HHS also finalized a new safe harbor for certain point-of-sale reductions in price offered by manufacturers on prescription pharmaceuticals that are payable under Part D or by Medicaid managed care organizations (MCOs) that meet certain criteria. Additionally, the agency is creating a new safe harbor for fixed fees that manufacturers pay to PBMs for services rendered to the manufacturers that meet specific criteria.

ASCO is still analyzing these rules. ASCO has long objected to mandatory demonstration models and will continue to urge CMMI not to adopt mandatory models of any nature, especially during the COVID-19 pandemic.

Bookmark ASCO in Action for more information and analysis as it becomes available.