An interim final rule that would require pricing drugs on the U.S. market based on their prices in certain countries is set to take effect on Jan. 1, 2021. Industry experts claim it will have little effect on bringing down prices for consumers. Precision’s Ryan Cox joins other experts in discussing the far ranging impact of the new rule.
MFN Rule Likely Will Have Broad Impact on Health Care System
More than two years after first proposing the idea of pricing drugs on the U.S. market based on their prices in certain countries, the administration on Nov. 20 moved ahead with an interim final rule that would require implementation of this approach on Jan. 1. Two weeks later, industry groups filed a pair of lawsuits seeking to halt implementation. If the law goes into effect, it stands to have a wide-reaching impact on the health care system while having little effect on bringing down prices for consumers, say industry experts.
Implemented through the CMS Center for Medicare & Medicaid Innovation (CMMI), the most-favored-nation (MFN) model (85 Fed. Reg. 76180, Nov. 27, 2020) “will test whether more closely aligning payment for Medicare Part B drugs and biologicals…with international prices and removing incentives to use higher-cost drugs can control unsustainable growth in Medicare Part B spending without adversely affecting quality of care for beneficiaries.”
The mandatory model will be tested nationwide for seven years, running from Jan. 1, 2021, to Dec. 30, 2027. It is taking a phased-in approach, with reimbursement at 75% average sales price plus 25% MFN price the first year, 50% ASP plus 50% MFN in 2022, 25% ASP plus 75% MFN in 2023, with the remaining four years at 100% MFN.
The rule also replaces the ASP plus 6% calculation that Medicare pays per drug with a flat add-on amount, which is $148.73 for the first quarter of the model.
The HHS Office of the Assistant Secretary for Planning and Evaluation (ASPE) estimates that the rule will save $87.8 billion in beneficiary and state and federal government spending over seven years and result in more than $28 billion in out-of-pocket cost savings for patients.
Pricing information will be from countries that are non-U.S. Organisation for Economic Co-operation and Development (OECD) members and have a gross domestic product per capita of at least 50% of the U.S. GDP. Twenty-two countries qualified for the initial rollout.
Model Will Target Most Costly Drugs
The model initially will focus on 50 single-source Part B drugs — including biosimilars but excluding products such as certain vaccines, radiopharmaceuticals and intravenous immune globulin products — that made up about 75% of annual Part B allowed charges in 2019. The list will be updated annually, but drugs on the initial list will not be taken off of it except under certain circumstances, such as their permanent withdrawal from the U.S. market. Hematology/oncology drugs make up most of the list, with 29 therapies included. Other impacted specialties include rheumatology, neurology and ophthalmology.
While the interim final rule did not include Part D as did a Sept. 13 executive order on the MFN model, during a Nov. 20 media call, CMS Administrator Seema Verma said that the agency was “currently developing something on that, and you’ll hear more about that later.” The rule also did not contain a Competitive Acquisition Program-like proposal contained in an Oct. 25, 2018, Advanced Notice of Proposed Rulemaking (RSP 11/18, p. 5).
Comments on the rule are due by Jan. 26. At press time on Dec. 7, more than 4,100 comments had been received.
“The MFN policy is highly problematic in many ways,” asserts Phil Ball, Ph.D., head of policy practice at Innopiphany. “If implemented as proposed, it will restrict patient access to important medicines, place significant financial and administrative burden on providers, stifle innovation and have negative consequences across domestic and global health care systems. All of this without guaranteeing savings for Medicare beneficiaries or a reduction of overall Medicare spend, in part because:
“(1) MFN does not directly lower prices — it lowers reimbursement for providers. These providers will need to negotiate greater discounts. There is no guarantee that manufacturers will agree to these discounts — it will depend on the manufacturer and the provider.
“(2) Many entities are exempt (including children’s hospitals, PPS-exempt cancer hospitals, critical access hospitals, rural health clinics), and there is a process for other providers to apply for exemption. A substantial level of exemption will further reduce any incentive for manufacturers to lower prices and may lead to a shift in business from those operating under the MFN model.”
Comments from Ted Okon, executive director of the Community Oncology Alliance, were a bit more pointed: “Today’s announcement by President Trump of the mandatory, nationwide Most Favored Nation (MFN) model is brazen and unhinged,” he said in a statement. “It is one of the most outrageous health policy proposals I have ever seen in nearly 20 years in Washington. It not only threatens community oncology providers as they struggle to treat a majority of Americans with cancer during an unchecked pandemic, but it also brazenly bypasses existing law as established by the legislative branch of the government.”
‘Likelihood of Chaos’ Early On Is High
“The MFN interim final rule poses an acute danger because the rule was published on Nov. 20 with an implementation date of Jan. 1, on a mandatory basis for all Medicare providers and on a nationwide basis,” says Elan Rubinstein, Pharm.D., principal at EB Rubinstein Associates. “This timeline allows a little over one month following publication to implementation, including intervening Thanksgiving and Christmas holidays. With a one-month lead time, including major holidays and an intervening COVID-19 pandemic, key market stakeholders are not likely to have systems, contracts or sufficient understanding to efficiently go live with this program. Consequently, the likelihood of chaos in the first months of the ‘pilot,’ including inaccessible lifesaving therapy for very ill Medicare beneficiaries, is extraordinarily high.”
Many long-term impacts also exist for a variety of reasons, he says. One is that “the rule assumes, without evidence, that manufacturers will lower prices to those set in accordance with the MFN rule, despite that doing this will entail a ‘double hit’ on their revenues.” However, an analysis by the CMS Office of the Actuary assumes that 9% of beneficiaries will have no access to their drugs in 2021 because manufacturers will not, in fact, lower their prices. That percentage increases to 14% in the second year of the model before flattening out at 19% for the remaining five years.
Verma maintained during the Nov. 20 call that that estimate was based on a range of scenarios. “It’s my view that beneficiaries will not lose access to the medications that are out there and that all of the manufacturers will continue to make sure that seniors in this country have access to the drugs that they need,” she said. “I can’t see a single manufacturer that would want to withhold medications to seniors that need them.”
Oncology Practices Are Set to Take Big Hit
“Oncology specialty practices — hematology/oncology, medical oncology and gynecological/oncology — are projected to be the most hurt by the MFN policy, on average,” points out Rubinstein. Those specialties are expected to undergo declines of 8%, 13% and 33%, respectively, due to the add-on payment change. “Because administered drugs comprise a significant portion of these practices’ revenues, this reduction will be difficult to sustain.”
“On the other hand, some medical specialties are projected to do very well — interventional cardiology, on average, will enjoy a 1,383% payment increase,” he adds. Based on the rule’s logic to do away with an ASP percentage add on — that it incentivizes more use of costly drugs — would providers in these specialties “be incentivized to administer more Part B drugs”?
“How does this make any sense? The bottom line is that Medicare beneficiaries with cancer will be harmed if manufacturers of cancer-related drugs don’t reduce prices to MFN price levels, and oncology providers will also be hurt due to the MFN model’s change from a percentage markup on ASP to a fixed dollar fee-per-administered drug.”
“Given the implications of the MFN payment being less than the acquisition cost, this may have a very significant impact to oncologists’ ability to provide the most effective treatments to their Medicare patients,” Ryan Cox, R.Ph., vice president of the access experience team at PRECISIONvalue, tells AIS Health. “It may also create a shift from administering drugs in lower-cost sites of care to potentially higher-cost cancer treatment facilities that will not be included in the MFN payment model.”
The rule also assumes that data sources needed for MFN prices will continue to be available “despite the negative implications of U.S. referencing to these much smaller nations’ ability to negotiate favorable contracts with pharmaceutical manufacturers,” says Rubinstein.
One Biosimilar Is on List of Targeted Drugs
The model includes biosimilars, with one, Coherus BioSciences, Inc.’s Udenyca (pegfilgrastim-cbqv), appearing on the initial list of 50 drugs.
According to the rule, ASPE “assumed that there will be at least one biosimilar manufacturer that is willing to provide its product at MFN payment levels if the reference manufacturer would not supply this drug. We note however that if reference manufacturers are willing to sell at MFN payment levels, providers may not have any incentive to use biosimilar products.”
Thus, says Rubinstein, “CMS appears willing to force use of biosimilars that the FDA has not designated to be interchangeable and risk starvation of the budding biosimilars market to support the MFN model pilot.” Cox also points out that including these drugs in the model “seemingly contradicts the administration’s American Patients First blueprint,” which encouraged incentivizing development of biosimilars to help compete with branded products and thus bring down drug prices (RSP 5/18, p. 1).
New Administration Could Modify Rule
“The chance that the MFN drug pricing model survives in its current form in a Biden administration that includes a new HHS secretary is unlikely,” says Cox. “Even if the comment period ends on Jan. 26, 2021, the new administration will have the opportunity to review stakeholder comments and potentially impact the MFN rule based on the feedback. While the need to address high drug prices has shown bipartisan support, the solutions need to be less symbolic and well thought-out in both design and implementation. The MFN payment model appears to fall short on both.”
On Dec. 4, two lawsuits were filed challenging the rule. The Pharmaceutical Research and Manufacturers of America (PhRMA), the Association of Community Cancer Centers, the Global Colon Cancer Association and the National Infusion Center Association filed a lawsuit (No. 1:20-cv-03531-CCB) in the U.S. District Court for the District of Maryland against HHS, CMS, CMMI and the head of each agency. And the Biotechnology Innovation Organization (BIO), the California Life Sciences Association and Biocom California filed a complaint (No. 3:20-cv-08603) against HHS, CMS and their heads in the U.S. District Court for the Northern District of California.
Among the arguments in the PhRMA suit are that the administration is “overreach[ing]” through the rule by “implement[ing] a novel, mandatory and nationwide payment scheme” as opposed to a test and that CMS does not have the authority to issue such a “far-ranging” regulation. It points out that CMS has been considering similar proposals for almost three years but is issuing an interim final rule — which are issued only when there is “good cause” to do so — that forgoes the notice-and-comment process. “CMS attempts to justify this evasion of procedure by claiming that its hand was forced by the COVID-19 pandemic — an emergency so sudden that it apparently did not stir CMS to action at any point during the ten months since COVID-19 had been declared a public health emergency,” it states.
The BIO complaint is similar, maintaining that the rule is “in clear violation of the notice-and-comment requirements of the Administrative Procedure Act” and is an “impermissible attempt by HHS to use its limited authority to ‘test’ new payment ‘models’ as a basis for completely rewriting the reimbursement formula Congress enacted.”
“Further, the whole premise of the new Rule is that HHS is testing a new reimbursement model that it believes will reduce drug prices,” says the complaint. “HHS cannot claim that it is testing a model to see if it reduces drug prices, then declare that the Rule should go into effect immediately because HHS knows that its model will immediately reduce drug prices. HHS certainly cannot make such a declaration in light of its admission that its unprecedented model involves ‘an unusually high degree of uncertainty’…and could end up harming — rather than helping — patients, by forcing them to accept riskier or less effective treatments or to forgo treatment during the COVID-19 pandemic.”
“While there is bipartisan support to act on drug pricing, the potential impact of the rule on Medicare beneficiaries’ access to treatments, hospital revenue and health care provider services suggests the rule cannot stand in its current form,” contends Cox. “CMS even acknowledges that, absent price concession from drug manufacturers, providers will be reimbursed below their acquisition costs. This could result in rationing of care, using less-effective medications and shifting Medicare patients to facilities that are exempt from the MFN payment model.”
Ultimately, recommends Rubinstein about the MFN rule: “Kill it. It is dangerous. The problems it addresses are real and urgent. But it is the wrong way to fix that problem.”
Download the BIO complaint at https://bit.ly/3oyb7Qp and the PhRMA complaint at https://onphr.ma/3qzmWaR. Contact Ball at email@example.com, Cox via Tess Rollano at firstname.lastname@example.org and Rubinstein at email@example.com.
by Angela Maas