November 30, 2020

CMS finalizes rules to lower Rx drug costs—including 'most favored nation' model

Daily Briefing

    The Trump administration recently finalized a rule aimed at lowering prescription drug costs in America by aligning certain Medicare Part B drug prices with lower prices paid in other countries.

    Cheat sheets: Medicare Parts A - D

    The new rule comes after President Trump in July signed a series of executive orders that directed federal departments and agencies to begin regulatory processes to implement initiatives targeting high prescription drug prices. According to Politico, the Trump administration issued the new final rule on Nov. 20, which marked the last day the administration could release a rule that requires a 60-day period before taking effect and still have the rule take effect before Trump's presidency ends.

    CMS rule implements mandatory model tying Medicare Part B payments to drug prices in other countries

    CMS on Nov. 20 issued an interim final rule that calls for the agency to implement a new payment model designed to test whether aligning providers' payments for certain Medicare Part B drugs and biologics with the lower prices paid for the drugs in other countries, as well as eliminating certain factors that could drive providers to use higher-cost drugs, will reduce federal spending on Medicare Part B.

    The interim final rule states that CMS' Center for Medicare and Medicaid Innovation (CMMI) will implement and test the new, seven-year payment model, called the Most Favored Nation (MFN) Model, which will be mandatory for physician practices and hospital outpatient departments nationwide. The new payment model will apply to 50 drugs and biologics responsible for "a high percentage" of spending under Medicare Part B, CMS said in a fact sheet.

    Under the MFN Model, Medicare will no longer base payments to providers for the affected drugs on the average sales price (ASP) of those drugs in the U.S. commercial market. Instead, the interim final rule requires CMMI to implement a flat payment for those Medicare Part B drugs, using a formula that links payments for the drugs to lower prices paid for the drugs in certain other countries.

    According to CMS, the formula will generate the lowest-adjusted international price—or MFN price—for each affected drug and biologic. Specifically, CMS said the MFN price will "be based on the lowest [gross domestic product (GDP)]-adjusted price paid by any country that was an [Organization for Economic Co-operation and Development] (OECD) member country as of Oct. 1, 2020, and has a GDP per capita (adjusted for purchasing power parity) that is at least 60% of the [United States'] GDP per capita."

    Since the model will be mandatory, "[a]ll Medicare-participating physicians, hospitals, and ambulatory surgical centers in the United States and territories will be paid the model payment for these 50 drugs and biologicals, rather than the current [ASP] plus 6% add-on," CMS said in a release. However, certain hospitals and clinics will be exempt from the model, including cancer hospitals, children's hospitals, critical access hospitals, rural health centers, federally qualified health centers, and Indian Health Service facilities, CMS said.

    Under the interim final rule, CMMI will phase in the MFN Model over a four-year period beginning Jan. 1, 2021. During the model's first year, CMMI will calculate payments for the affected Medicare Part B drugs and biologics by using 75% of the ASP and 25% of the MFN price. The share of the MFN price used to calculate payments for the affected drugs will then increase by 25% each subsequent year, until payments for the drugs are based 100% on the MFN price in the fourth year. However, CMS in the fact sheet noted that CMMI may phase in the MFN prices earlier or further lower MFN prices if U.S. prices increase faster than both inflation and the MFN price.

    Under the interim final rule, the MFN payment model is scheduled to end on Dec. 31, 2027.

    CMS said the new payment model could save Medicare beneficiaries and taxpayers more than $85 billion over the next seven years. However, the agency noted that "a portion of the savings is attributable to beneficiaries not accessing their drugs through the Medicare benefit, along with the associated lost utilization." As Politico reports, that "essentially" means that CMS expects "fewer people" will "hav[e] access to certain medicines starting in 2023.

    Observers said the interim final rule will likely face legal challenges, Politico reports, and the interim final rule drew criticism from both providers and the drug industry.

    For instance, Stephen Ubl, president and CEO of Pharmaceutical Research and Manufacturers of America (PhRMA), in a statement said, "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." Ubl added that PhRMA is "considering all options to stop this unlawful onslaught."

    Separately, the Community Oncology Alliance called the interim final rule "brazen" and "unhinged."

    Trump admin eliminates FDA program designed to remove unapproved drugs from the market

    President Trump on Nov. 20 also announced that his administration will eliminate FDA's Unapproved Drugs Initiative, which aims to end sales of old and potentially dangerous unapproved drugs that have been on the market for decades.

    Under the program, which FDA launched in 2006 and revised in 2011, drugmakers have had to remove hundreds of older drugs that did not have FDA approval from the market, unless the drugmakers had proven the drugs were safe and effective. Critics of the program have said that, once drugmakers proved the older drugs were safe and effective, some would seek market exclusivity for those products and then require other manufacturers to stop selling other versions of the drugs, Inside Health Policy reports. 

    According to Inside Health Policy, Trump said the initiative therefore has allowed drugmakers to corner the market for some drugs, and also raise new drugs' prices once older versions of the medications are removed from the market.

    "This program has been used by drug companies to increase prices dramatically and linked to drug shortages for important drugs patients need. In a related action, we're also asking for input on how FDA should handle these types of drugs going forward, with the goal of ensuring a competitive market for safe and effective drugs that Americans can trust," HHS Secretary Alex Azar said.

    HHS said it is withdrawing FDA's 2006 and 2011 guidance documents related to the program.

    New rule, action has uncertain future

    The majority of the new rule's and action's implementation will fall on President-elect Joe Biden's administration, and it's unclear whether Biden's administration will carry out their implementation. In addition, Congress has some authority to reserve last-minute regulations—or so-called midnight rules— STAT+ reports.

    But many Democratic health experts, including a Biden campaign adviser, have said they believe Biden should move forward with implementing the measures, because they align with Biden's health care agenda, according to STAT+ (Owermohle, Politico, 11/20; Alonso-Zaldivar, Associated Press, 11/20; Wilkerson, Inside Health Policy, 11/20 [subscription required]; Florko/Facher, STAT+, 11/20 [subscription required]; Wang, Inside Health Policy, 10/20 [subscription required]; CMS release, 11/20; CMS fact sheet, 11/20).

    Learn more: 5 ways to control the flow of drug expenditures

    control the flow of drug expenditures

    Prescription drug expenditures are the fastest growing component of health care spending. And while reducing unwarranted prescribing variation is the single biggest improvement opportunity, there are several other near-term chances to reduce spending and grow revenues.

    Download this infographic to understand—and use—available controls to manage spend, capture revenue, and position for growth.

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