Update on HHS drug pricing rules: An HHS final rule targeting Medicare Part D rebates was issued on November 30, 2020. Unlike the interim rule, the final rule includes only rebates in Part D, not Medicaid managed care, and it pushes back implementation from Jan. 1, 2020, to Jan. 1, 2022. Comments on the interim final rule following the Most Favored Nation model are due by Jan. 26, 2021. Precision’s Andrew Cournoyer and Ryan Cox weigh in on the problems and concerns with both rules.

Administration Issues Drug Pricing Rules That May Have Unintended Outcomes

As the current administration nears its final days in office, HHS on Nov. 20 posted a pair of rules aimed at bringing down costs for patients. While various industry experts have pointed out that both rules — one targeting Medicare Part D rebates and the other establishing most-favored-nation (MFN) prices in Part B — will have detrimental effects on multiple stakeholders, the heads of HHS and CMS both brushed aside concerns over those outcomes.

President Donald Trump has targeted PBMs and the pharma industry throughout his presidency, starting with his American Patients First blueprint, which was unveiled May 11, 2018, and included removing the safe harbor for drug rebates and addressing “the unfair disparity between the drug prices in America and other developed countries” (SMA 6/18, p. 1). HHS legislative efforts followed, and most recently, on July 24, the president signed executive orders on both issues (SMA 8/17/20, p. 1).

In focusing on rebates negotiated between manufacturers and PBMs, HHS published a proposed rule (84 Fed. Reg. 2340) in the Feb. 6, 2019, Federal Register that would do away with the safe-harbor protection in the anti-kickback statute for rebates in Part D and Medicaid managed care (SMA 2/18/19, p. 1). It also proposed adding two safe harbors: one protecting some point-of-sale price reductions, allowing those savings to be provided directly to beneficiaries when they are filling a prescription, and a second protecting service fees provided by manufacturers to PBMs.

However, following a Congressional Budget Office determination that the legislation would cost the government approximately $177 billion from 2020 to 2029 (SMA 5/20/19, p. 1), the administration withdrew the rule in July 2019, as indicated by the Office of Management and Budget (OMB) website (SMA 8/5/19, p. 1). However, no official withdrawal notice was published in the Federal Register.

On Nov. 13, 2020, OMB received a final rule for review. One week later, HHS unveiled it (86 Fed. Reg. 76666, Nov. 30, 2020).

Unlike the proposed rule, the final rule includes only rebates in Part D, not Medicaid managed care. In addition, the newest effort pushed back implementation from Jan. 1, 2020, to Jan. 1, 2022.

Stakeholders Have Raised Issues

While many stakeholders, particularly manufacturers, are in favor of doing away with rebates, issues with the rule, as well as how it was issued, have been raised.

Andrew Cournoyer, R.Ph., vice president and director of the access experience team at PRECISIONvalue, maintains that CMS should start over with a new proposal. Rebates are offered for brand-name drugs, most of them specialty, and when Medicare Part D started in 2006, “specialty drugs weren’t primary cost drivers, and drug trend was driven by nonspecialty branded drugs,” he observes. “The dynamic is vastly different today where we’ve had multiple patent cliffs and the majority of brand drugs to drive rebate value lies within the specialty arena. In essence, we’re leaning on the less than 5% of our population who use specialty drugs to drive rebates for the entire benefit.…Today’s generic dispensing rates are in excess of 80%, meaning that passing through discounted savings at the point of sale affects a smaller number of claims. Ultimately this could mean that a smaller proportion of Medicare beneficiaries will reap the benefit while many are left paying higher premiums with no offset in out-of-pocket costs.”

Another issue concerns the president’s July executive order, which said that before such a policy could be implemented, the HHS secretary “shall confirm — and make public such confirmation — that the action is not projected to increase Federal spending, Medicare beneficiary premiums, or patients’ total out-of-pocket costs.”

The same day that HHS posted the final rule, HHS Secretary Alex Azar issued a statement confirming that “in my view the Final Rule implementing the Executive Order is not projected to increase Federal spending, Medicare beneficiary premiums, or patients’ total out-of-pocket costs.”

But as Elan Rubinstein, Pharm.D., principal at EB Rubinstein Associates, points out, the final rule “shows a range of possible changes in premiums, depending on assumptions used to model the impact of this rule. Analyses shown in the rule do not support Alex Azar’s contention that the rule will not increase premiums but rather that premiums may increase or decrease, depending on assumptions [with regard to] patient and manufacturer responses to the rule.”

“A key challenge to implementation is that PBM rebates do appear to hold down premiums in Medicare Part D,” says Phil Ball, Ph.D., head of policy practice at Innopiphany, who points out that “nothing has changed” in terms of the projections in the proposed rule. “Secretary Azar disagrees with this conclusion, but this is mainly based on his personal experience and is not necessarily substantiated by new data or scores.”

Azar “provided no new analyses to disqualify concerns of premium increases,” agrees Cournoyer. “Because this final rule is relatively unchanged from the original, I expect considerable legal pushback similar to the first go-round, especially with no new information or data. The likelihood of its implementation for Jan. 1, 2022, in my opinion, is low.”

Yet another question revolves around whether the original proposal was officially withdrawn and, if not, whether CMS would have to start over with a new proposal instead of a final rule.

An article by attorneys from King & Spalding published Nov. 30 on JD Supra notes that “neither OMB nor [the HHS Office of Inspector General], however, explained how the Final Rule could be proper given that the Proposed Rule was withdrawn and no new Proposed Rule was released. One notable former OMB official has argued that the Rule must go back through the Proposed Rule stage because the withdrawal was not published in the Federal Register. This unusual procedural issue will likely be litigated in the coming months as plan sponsors bring their legal challenges to the Rule.”

According to the article, “should the Rule survive judicial review, it seems likely to shift alignment in the manner in which manufacturers and plan sponsors do business. Over the next year — indeed over the next five months, manufacturers and PBMs will need to negotiate new discounts, rebates, and services fees designed to fit within the new point-of-sale rebate safe harbor and new PBM service fees safe harbor.”

Cournoyer points out that Part D plan sponsor bids for the 2022 benefit year must be submitted by the first week of June 2021, “so although the date appears to have been extended, it is still an aggressive timeline.”

And while the rule applies only to Medicare Part D, “there could be some carryover effect into the commercial market should the rule not be overturned,” Cournoyer tells AIS Health. “We believe that Medicare formularies could become leaner, meaning less brand selection and a strong focus on generics or drugs with lower [wholesale acquisition costs]. For plans that aim to have some level of consistency in formulary offerings between commercial and Medicare lines of business, there may be further tightening of commercial formularies. But overall, I would not expect a profound impact in commercial — over time, possibly. We have seen initiatives in Medicare carry through into the commercial space. For example, when Part B drugs moved to an ASP [i.e., average sales price] reimbursement methodology back in 2006, we saw commercial reimbursement of medical drugs begin to mimic this shift.”

MFN Rule Will Have Wide Impact

Implemented through the CMS Center for Medicare & Medicaid Innovation (CMMI), the MFN model also has quite the legislative background. Its first iteration, known as the International Pricing Index (IPI) model (83 Fed. Reg. 54546, Oct. 30, 2018), was unveiled on Oct. 25, 2018, in an Advanced Notice of Proposed Rulemaking (ANPRM). It proposed that instead of CMS reimbursing Medicare Part B drugs at ASP plus 6%, it would reimburse these medications per an IPI based on drug pricing data from not only the U.S. but also 16 other developed countries (SMA 11/18, p. 1).

That ANPRM was followed by a July 24, 2020, executive order that took a more hard-hitting approach than the IPI in that it called for MFN pricing in Part B (SMA 8/17/20, p. 1). The order was signed yet never made public, as the president encouraged drugmakers to come up with an alternative approach. When the industry and administration could not reach an agreement, the president revoked that order and issued another one on Sept. 13 that focused on MFN pricing for Parts B and D (SMA 10/5/20, p. 1).

The newest MFN model (85 Fed. Reg. 76180, Nov. 27, 2020) was published on Nov. 20 as an interim final rule with a comment period, with implementation set to begin in less than two months. The model “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% ASP 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.

Certain providers, such as children’s hospitals, prospective payment system (PPS)-exempt cancer hospitals and critical access hospitals, will be excluded.

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 the Sept. 13 executive order, 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 the IPI ANPRM (SMA 11/18, p. 11).

Comments on the rule are due by Jan. 26. At press time on Dec. 15, more than 4,300 comments had been received.

“The MFN policy is highly problematic in many ways,” asserts Ball. “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 Rubinstein. “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, a CMS Office of the Actuary (OACT) analysis of the model indicates that “some manufacturers will adhere to their current pricing instead of lowering sales prices in response to the model.” According to the rule, if this were to happen and beneficiaries are unable to access certain drugs through their current providers, their options would be “traveling to an excluded provider or supplier, access the drugs through a 340B provider in the model, or forgo access.”

In fact, based on the OACT estimate, the rule assumes that 9% of Part B utilization will be eliminated in 2021 because manufacturers will not, in fact, lower their prices, resulting in patients not being able to access their medications. 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 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”?

He continues, “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.

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.

“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 says 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.”

“Do these new rules represent the last-minute death throes of a vengeful Trump administration, intended to throw monkey wrenches into the workings and priorities of the upcoming Biden administration, or do they represent serious, well-considered and long-term policy?” Rubinstein asks. “My top-line take: The Most-Favored-Nations pricing for Part B, with a Jan. 1, 2021 rollout, falls into the former category, while the rebate safe-harbor rule may fall into the latter category.”

View the rebate rule at https://bit.ly/2IRo0Wy and the MFN rule at https://bit.ly/3gOHojD. Download the BIO complaint at https://bit.ly/3oyb7Qp and the PhRMA complaint at https://onphr.ma/3qzmWaR. Contact Ball at philip.ball@innopiphany.com, Cournoyer and Cox via Tess Rollano at trollano@coynepr.com and Rubinstein at elan.b.rubinstein@gmail.com. ✧

by Angela Maas

AIS Health