CMS Issues Interim Final Rule Implementing the Most-Favored-Nation Model for Medicare Part B Drugs

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The Centers for Medicare & Medicaid Services (CMS) published an interim final rule implementing the Most-Favored-Nation (MFN) Model for Medicare Part B drugs and biologics in the November 27, 2020, Federal Register (the “Interim Final Rule”).1 This follows an Executive Order issued in September 2020 titled, “Lowering Drug Prices by Putting America First,” which directed the Secretary of the Department of Health and Human Services to implement new payment models under the Medicare Part B and Part D programs to curb “unfair” and high drug prices in the United States.2

The MFN Model is meant to test whether payments for Medicare Part B drugs and biologics that more closely align with certain international prices will help to control growth in Medicare Part B spending without adversely affecting quality of care. The model will aim to take a global approach to calculating payment amounts by taking into account the discounts that other countries realize and paying providers and suppliers with a fixed, add-on amount.

The model will be tested in all states and U.S. territories by the CMS Innovation Center for seven performance years, from January 1, 2021 to December 30, 2027.  During the performance years, CMS will evaluate the model’s effectiveness as it relates to access to needed therapeutics, costs, and quality of care. The model will focus on a select cohort of separately payable Medicare Part B drugs, initially to include 50 single-source drugs and biologicals (including biosimilar biological products) that encompass a high percentage of Medicare Part B drug spending.

The model will require mandatory participation and will include all providers and suppliers that participate in the Medicare program and submit a separately payable claim for an MFN Model drug. There are limited exceptions to participation, such as providers and suppliers that are paid for separately payable Medicare Part B drugs based on reasonable costs.

The Model will calculate payments for drugs based on “a price that reflects the lowest per capital Gross Domestic Product-adjusted (GDP-adjusted) price of any non-U.S. member country of the Organization for Economic Co-operation and Development (OECD) with a GDP per capita that is at least sixty percent of the U.S. GDP per capita, based on available data.”3 The model will also reduce beneficiary cost sharing and make an alternative add-on payment for MFN model drugs that is intended to provide a mechanism to remove or reduce the financial incentive to prescribe higher-cost drugs.

AGG Observations

  • The interim final rule represents CMS’s most recent step towards curbing growing Medicare Part B spending, particularly as compared to other nations. However, there has been substantial pushback from industry stakeholders who argue that high prices support continued innovation.
  • For pharmaceutical companies that typically operate within the Medicare Part D program, this interim final rule will have limited impact unless or until it is extended to Medicare Part D in the future.
  • Based on the September 2020 Executive Order, we believe a similar payment model may be announced for the Medicare Part D program in the future.

[1] The interim final rule is available at the following: https://public-inspection.federalregister.gov/2020-26037.pdf.

[2] More information regarding the Executive Order is available at the following: https://www.jdsupra.com/legalnews/president-donald-trump-signs-an-60288/.

[3] Interim Final Rule.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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