On the afternoon of November 20, 2020, the Trump Administration released an interim final rule with comment period (IFC) from the Centers for Medicare and Medicaid Services (CMS) to implement a mandatory, seven-year payment model called the Most Favored Nation (MFN) Model. This model will initially include a group of 50 single source drugs and biologicals (hereafter “drugs”) that constitute a high percentage of Medicare spending. For this group of drugs, CMS will tie the payment for these drugs to an international price, phasing-in the incorporation of this international portion.
The MFN Model’s genesis is the Trump administration’s drug pricing blueprint “American Patients First” and an advanced notice of proposed rulemaking (ANPRM) from 2018, which was released along with a report from the Assistant Secretary for Planning and Evaluation (ASPE) comparing U.S and international prices. The ANPRM outlined a potential model known as the International Pricing Index (IPI) Model but it was not implemented and no further rulemaking action was taken. It is also supported by an Executive Order (EO) announced in late July 2020, which was eventually superseded by another EO released on September 13, 2020 entitled “Executive Order on Lowering Drug Prices by Putting America First.” While the initial IPI Model and eventual MFN Model both use international prices, the models contain distinct differences. In particular, the IPI Model used an average of international prices, instead of basing reimbursement on the lowest price in select members of the Organisation for Economic Co-operation and Development (OECD). CMS does refer to input from the IPI ANPRM throughout the IFC outlining the MFN Model.
The mandatory MFN model is scheduled to begin on January 1, 2021 and run for seven years. The CMS Office of the Actuary (OACT) estimates savings of roughly $64.4 billion in Medicare fee-for-service (FFS) benefits over the course of the model. However, OACT goes on to acknowledge that some of these savings may be due to a reduction in access: “a portion of the [Medicare] savings is attributable to beneficiaries not accessing their drugs through the Medicare benefit, along with the associated lost utilization.” Finally, OACT estimates that beneficiary savings will total $28.5 million from a reduction in Medicare Part B premiums and lower coinsurance amounts from the model.
The MFN Model will likely face a legal challenge from pharmaceutical manufacturers, potentially focused on the use of an interim final rule to implement such a model instead of the standard notice-and-comment rulemaking process. It may also receive challenges from providers who believe that a mandatory, nationwide model is not consistent with the intent or purpose of Section 1115 research and demonstration waivers. Finally, there is expectation that CMS will receive significant pushback from certain physician groups that may see the MFN model as a disruption of their current business models and from certain patient groups that may feel the MFN model restricts access to life-saving drugs.
Comments on the interim final rule are due on January 26, 2021.
MFN Model to Include 50 High-Spend Drugs, Run for Seven Years
The Most Favored Nation (MFN) Model will initially include a select group of 50 drugs and biologicals under Medicare Part B. These drugs were identified based on HCPCS codes with high annual spend in 2019 and thus, account for a high percentage of Part B drug spending. CMS intends to maintain approximately 50 drugs during the 7-years of the model. Any drugs added in subsequent performance years will be identified in a similar way using claims data, but CMS does say that, based on Part B drug spending patterns, the agency anticipates the drug list will remain “relatively stable” throughout the duration of the model.
Drugs will not be removed from the model if they drop out of the top 50 by spending. Drugs will only be removed if the product is permanently withdrawn from the U.S. market, the specific HCPCS code is terminated with no replacement code, or the drug fits one of the exclusion criteria. The list of 50 included drugs for the first performance year is included in Appendix A and includes a variety of drugs used to treat cancer, rheumatoid arthritis, macular degeneration, and other conditions.
Certain types of drugs are excluded from the model: Part B vaccines, radiopharmaceuticals, oral drugs, compounded drugs, intravenous immune globulin products, and drugs without a drug-specific HCPCS code. Drugs billed with a HCPCS code for which a generic product is assigned are also excluded and any drug for which there is an Emergency Use Authorization (EUA) or approval by the Food and Drug Administration (FDA) to treat COVID-19 are also excluded. Biosimilars are not explicitly excluded from the model but given the lower Part B spending for biosimilar HCPCS codes, only one biosimilar is included in the 50 drugs for performance year one.
The MFN Model will run for 7 years, from January 1, 2021 to December 31, 2027. CMS says that the 7-year period to allow for a smooth transition to the MFN price by performance year 4 followed by enough time to see the impact of the model. The agency intends to assess the impacts of the model across quarterly time periods as well as the impact on quality of care, including access, prior to the start of performance year 5.
MFN Units to Be Excluded from ASP Calculation
Units of MFN Model drugs provided under the model will be excluded from the calculation of average sales price (ASP). Manufacturers will have to determine the appropriate number of units to exclude when calculating and reporting ASP. Sales of MFN Model drugs to model participants will be included in average manufacturer price (AMP). In addition, the payment amount made under the model will not be included in the determination of best price. However, CMS suggests in the rule that manufacturers will need to make competitive prices available to model participants so that that they do not experience financial loss, potentially leading to lower prices and therefore, a lower best price.
Participation in MFN Model will Be Mandatory for Most Part B Providers and Include all Part B Beneficiaries
The MFN Model will be mandatory for providers and suppliers that participate in Medicare and submit a separately payable claim for an MFN Model drug. This includes, but is not limited to, physicians, non-physician practitioners, supplier groups, hospital outpatient departments (HOPDs), and ambulatory surgical centers (ASCs). CMS states their goal is to broadly include providers and suppliers that receive separate payment for the included drugs, which will help with generalizability of model results. Participants will not have to specifically enroll in the model; instead, submission of a claim for an MFN Model drug provided to an eligible beneficiary will mean that the model payment is applied for that claim.
There are, however, a few exceptions to participation. Providers and suppliers that are not paid for drugs based on ASP are excluded, which can apply to the following: children’s hospitals, PPS-exempt cancer hospitals, critical access hospitals, Indian Health Service facilities, Rural Health Clinics (RHCs), Federal Qualified Health Centers (FQHCs). The model also includes a process to apply for a financial hardship exemption for participants that are significantly affected by participation.
MFN drugs are only included when billed under Medicare Part B. Model drugs provided in the inpatient setting, administered through covered durable medical equipment (DME), or paid under the End-Stage Renal Disease Prospective Payment System (ESRD PPS) are not included. Medicare Advantage plans will not participate in the MFN Model.
The model will also not be limited to specific beneficiaries. CMS will include any Part B-enrolled beneficiary who receives an MFN Model drug by a participating provider. Medicare must be the primary payer for the beneficiaries, and they cannot be covered under a Medicare Advantage or other group health plan.
Intersection with 340B Program
Covered 340B entities will be included in the MFN Model. These MFN participants will be paid the lower of the MFN Drug Payment Amount and the non-model payment amount paid to 340B entities for 340B drugs. Covered 340B entities will still receive the alternative add-on payment amount. So that beneficiaries provided an MFN Model drug by a 340B covered entity do not have increased cost sharing under the Model.
Payment Amount for Included Drugs to be Tied to International Prices Using a Phased-In Approach
Under the MFN Model Payment, providers will receive the Most Favored Nation Drug Payment Amount for administered MFN drugs as well as an alternative add-on payment. Payment for drug administration services will still be separately billed by Model participants and there will be no change in this payment.
The MFN Drug Payment Amount will be calculated quarterly, similar to the current approach of an ASP-based payment. Beneficiary cost-sharing will apply for this amount, but no additional cost sharing will be required for the alternative add-on payment.
The MFN Drug Payment Amount will be based on the MFN Price, which is taken from the lowest GDP-adjusted country-level price for non-U.S OECD member countries with a GDP per capita that is at least 60 percent of the U.S. GDP per capita. OECD member countries will include countries that were members as of October 1, 2020 whether they remain in the OECD or not. The MFN Price will then be combined with a phased-in blend of the applicable ASP to determine the MFN Drug Payment Amount. CMS states that this phased-in approach, as outlined in the table below, is being used to allow MFN participants to adjust to the new payment methodology while still allowing for enough time to test the fully phased-in MFN Price. Should the applicable ASP of U.S. list price of an MFN Drug increase faster than both inflation and the MFN Price, CMS will accelerate the phase-in by 5 percentage points for each quarter this applies. The baseline to determine this increase will by the third calendar quarter of 2020 which determines the ASP used for the first quarter of performance year 1. If both conditions are met following the full phase-in of the MFN Price, the MFN Model Drug Payment Amount will be decreased.
TABLE 5. PHASE-IN OF MFN PRICES BY PERFORMANCE YEAR
|
Performance Year |
Blend of the ASP and MFN Price for an MFN Model Drug at the HCPCS Code Level |
| Year 1 | 75 percent applicable ASP and 25 percent MFN Price |
| Year 2 | 50 percent applicable ASP and 50 percent MFN Price |
| Year 3 | 25 percent applicable ASP and 75 percent MFN Price |
| Year 4 | 100 percent MFN Price |
| Year 5 | 100 percent MFN Price |
| Year 6 | 100 percent MFN Price |
| Year 7 | 100 percent MFN Price |
Source: CMS.
To determine international prices, CMS will rely on existing data sources that use a standard method for identifying drugs across countries and identifying drug forms. The data sources will contain international pricing information in U.S. currency, such as list prices, ex-manufacturer prices, actual or calculated sales, or volume data. One data source will be used for each Model drug and this will be what CMS considers to be the most comprehensive data source. Similar to the ASP-based system currently used for Part B drugs, the international pricing information will be from two calendar quarters prior to the quarter the MFN Drug Payment Amount will apply. In addition, international pricing data with less than $1,000 in quarterly sales or with less than 1,000 units in quarterly volume will be excluded to minimize the risk of using outlier data.
Based on available data, the MFN Price for the first quarter of performance year one (so January 1, 2021 through March 31, 2021) will be calculated base on pricing information from the following 22 countries: Australia, Austria, Belgium, Canada, Demark, Finland, France, Germany, Iceland, Ireland, Israel, Italy, Japan, Republic of Korea, Luxembourg, Netherlands, New Zealand, Norway, Spain, Sweden, Switzerland, and the United Kingdom.
The MFN Drug Payment Amount will not exceed non-model payment for the drug. If it does, then the applicable ASP will be the MFN Price. ASP will also be used for an MFN Drug if the FDA determines the drug is in shortage. Drugs that are added to the model in subsequent performance years will have the applicable phase-in formula applied. For example, a drug added in performance year 3 will be paid at 25 percent applicable ASP and 75 percent MFN Price.
Providers to Receive Additional Alternative Add-On Payment
In addition to the Most Favored National Drug Payment Amount, providers will receive an alternative add-on payment per dose of an MFN Model drug. This payment amount will not vary based on amount of drug, participant, or specialty of provider. Beneficiaries will not be responsible for any cost sharing for this add-on payment. To bill for and receive the add-on payment, providers will submit an additional line on claims using a new model-specific HCPCS code, M1145, MFN drug add-on, per dose.
The add-on payment amount is not tied to the payment for the drug and is set at $148.73 for performance year 1. CMS calculated the amount based on 6.1224 percent of historical applicable ASPs for 2019 from the drugs included in performance year one. This amount will be trended forward each quarter using an inflationary adjustment. For the biosimilar included in the model, CMS will use the ASP of the reference product in the calculation.
In essence, the alternative add-on payment is a way to offset the anticipated decrease in revenue providers will experience due to the MFN Drug Payment Amount being lower than the ASP plus 6% payment level currently used for these products. CMS anticipates that the phased-in MFN price discount relative to ASP will scale from 16 to 65 percent over the first four years of the model. Some providers, especially those who use costly drugs, may see this as a pay cut as they are able to purchase Part B drugs at prices lower than ASP. They are then paid for ASP plus 6 percent and are able to keep the spread. Thus, moving to the MFN Drug Payment Amount instead of ASP plus 6 will have wide ranging effects on providers, both in terms of the drug spread and payment for administration of the drug.
In the rule, CMS projects that providers across specialties will see an average of a 40 percent increase in revenue for administration services when comparing the MFN add-on payment to the historical-based 4.3 percent of ASP (after-sequestration) add-on. In the top 35 specialties, CMS predicts that nine will not see increases in add-on revenue due to the use of the add-on payment. The nine are:
- Hematology/oncology
- Medical oncology
- Neurology
- Hematology
- Gastroenterology
- Gynecological/oncology
- Infectious disease
- Hematopoietic cell transplantation & cellular therapy
- Dermatology.
CMS does note that in their observations of the top five specialties based on Medicare spending on model drugs, volume is not consistently associated with whether a provider or practice will see increased or decreased revenue under the add-on payment structure versus the ASP-based add-on. The top five specialties based on total aggregate Medicare spending on MFN Model drugs in 2019 was internal medicine, hematology/oncology, ophthalmology, rheumatology, and medical oncology.
Appendix A
|
Rank |
List of HCPCS Codes |
Short Description |
2019 Total Allowed Charges, after exclusions (in dollars) |
1st Top Specialty |
2nd Top Specialty |
3rd Top Specialty |
| 1 | J0178 | Aflibercept injection | $2,982,942,674 | Ophthalmology | Ambulatory Surgical Center | Internal Medicine |
| 2 | J9271 | Inj pembrolizumab | $2,815,337,226 | Hematology/Oncology | Internal Medicine | Medical Oncology |
| 3 | J9299 | Injection, nivolumab | $1,878,981,569 | Hematology/Oncology | Internal Medicine | Medical Oncology |
| 4 | J9312 | Inj., rituximab, 10 mg | $1,865,991,330 | Hematology/Oncology | Internal Medicine | Rheumatology |
| 5 | J0897 | Denosumab injection | $1,721,580,561 | Hematology/Oncology | Internal Medicine | Rheumatology |
| 6 | J2778 | Ranibizumab injection | $1,295,341,479 | Ophthalmology | Ambulatory Surgical Center | Internal Medicine |
| 7 | J2505 | Injection, pegfilgrastim 6mg | $1,242,697,080 | Hematology/Oncology | Internal Medicine | Medical Oncology |
| 8 | J9035 | Bevacizumab injection | $1,099,476,084 | Hematology/Oncology | Internal Medicine | Medical Oncology |
| 9 | J1745 | Infliximab not biosimil 10mg | $1,010,328,165 | Rheumatology | Gastroenterology | Internal Medicine |
| 10 | J0129 | Abatacept injection | $968,556,135 | Rheumatology | Internal Medicine | Hematology/Oncology |
| 11 | J9355 | Inj trastuzumab excl biosimi | $851,042,669 | Hematology/Oncology | Internal Medicine | Medical Oncology |
| 12 | J9145 | Injection, daratumumab 10 mg | $843,712,153 | Hematology/Oncology | Internal Medicine | Medical Oncology |
| 13 | J2350 | Injection, ocrelizumab, 1 mg | $703,104,359 | Neurology | Hematology/Oncology | Internal Medicine |
| 14 | J1300 | Eculizumab injection | $562,413,430 | Neurology | Hematology/Oncology | Internal Medicine |
| 15 | J9305 | Pemetrexed injection | $539,680,121 | Hematology/Oncology | Internal Medicine | Medical Oncology |
| 16 | J9022 | Inj, atezolizumab,10 mg | $486,551,001 | Hematology/Oncology | Internal Medicine | Medical Oncology |
| 17 | J9173 | Inj., durvalumab, 10 mg | $476,638,073 | Hematology/Oncology | Internal Medicine | Medical Oncology |
| 18 | J2353 | Octreotide injection, depot | $466,969,222 | Hematology/Oncology | Internal Medicine | Medical Oncology |
| 19 | J0717 | Certolizumab pegol inj 1mg | $458,757,878 | Rheumatology | Internal Medicine | Nurse Practitioner |
| 20 | J9041 | Inj., velcade 0.1 mg | $436,302,629 | Hematology/Oncology | Internal Medicine | Medical Oncology |
| 21 | J2357 | Omalizumab injection | $423,947,996 | Allergy/Immunology | Internal Medicine | Pulmonary Disease |
| 22 | J0585 | Injection,onabotulinumtoxina | $389,236,097 | Neurology | Physical Medicine and Rehabilitation | Ophthalmology |
| 23 | J1602 | Golimumab for iv use 1mg | $368,492,761 | Rheumatology | Internal Medicine | Nurse Practitioner |
| 24 | J3380 | Injection, vedolizumab | $362,050,123 | Gastroenterology | Hematology/Oncology | Internal Medicine |
| 25 | J9264 | Paclitaxel protein bound | $333,264,824 | Hematology/Oncology | Internal Medicine | Medical Oncology |
| 26 | J9228 | Ipilimumab injection | $331,065,114 | Hematology/Oncology | Internal Medicine | Medical Oncology |
| 27 | J9217 | Leuprolide acetate suspnsion | $331,012,840 | Urology | Hematology/Oncology | Internal Medicine |
| 28 | J9306 | Injection, pertuzumab, 1 mg | $318,023,592 | Hematology/Oncology | Internal Medicine | Medical Oncology |
| 29 | J9047 | Injection, carfilzomib, 1 mg | $296,821,394 | Hematology/Oncology | Internal Medicine | Medical Oncology |
| 30 | J3262 | Tocilizumab injection | $279,068,051 | Rheumatology | Internal Medicine | Hematology/Oncology |
| 31 | J1930 | Lanreotide injection | $278,600,806 | Hematology/Oncology | Internal Medicine | Medical Oncology |
| 32 | J3357 | Ustekinumab sub cu inj, 1 mg | $264,386,412 | Rheumatology | Gastroenterology | Dermatology |
| 33 | J0881 | Darbepoetin alfa, non-esrd | $258,409,215 | Hematology/Oncology | Internal Medicine | Medical Oncology |
| 34 | J2323 | Natalizumab injection | $255,449,074 | Neurology | Hematology/Oncology | Internal Medicine |
| 35 | J2796 | Romiplostim injection | $248,212,119 | Hematology/Oncology | Internal Medicine | Medical Oncology |
| 36 | J9034 | Inj., bendeka 1 mg | $219,156,831 | Hematology/Oncology | Internal Medicine | Medical Oncology |
| 37 | J0885 | Epoetin alfa, non-esrd | $187,518,352 | Hematology/Oncology | Internal Medicine | Nephrology |
| 38 | Q2043 | Sipuleucel-t auto cd54+ | $182,158,187 | Urology | Hematology/Oncology | Internal Medicine |
| 39 | J2182 | Injection, mepolizumab, 1mg | $177,640,239 | Allergy/Immunology | Internal Medicine | Pulmonary Disease |
| 40 | J1439 | Inj ferric carboxymaltos 1mg | $173,008,338 | Hematology/Oncology | Internal Medicine | Medical Oncology |
| 41 | J9042 | Brentuximab vedotin inj | $162,519,904 | Hematology/Oncology | Internal Medicine | Medical Oncology |
| 42 | J9055 | Cetuximab injection | $162,477,948 | Hematology/Oncology | Internal Medicine | Medical Oncology |
| 43 | J9354 | Inj, ado-trastuzumab emt 1mg | $157,438,453 | Hematology/Oncology | Internal Medicine | Medical Oncology |
| 44 | Q5111 | Injection, udenyca 0.5 mg | $155,483,502 | Hematology/Oncology | Internal Medicine | Medical Oncology |
| 45 | J7324 | Orthovisc inj per dose | $152,408,630 | Orthopedic Surgery | Physician Assistant | Sports Medicine |
| 46 | J2785 | Regadenoson injection | $150,339,213 | Cardiology | Interventional Cardiology | Internal Medicine |
| 47 | J0517 | Inj., benralizumab, 1 mg | $136,977,827 | Allergy/Immunology | Internal Medicine | Pulmonary Disease |
| 48 | J2507 | Pegloticase injection | $123,947,596 | Rheumatology | Internal Medicine | Hematology/Oncology |
| 49 | J9176 | Injection, elotuzumab, 1mg | $123,725,659 | Hematology/Oncology | Internal Medicine | Medical Oncology |
| 50 | J9311 | Inj rituximab, hyaluronidase | $121,583,613 | Hematology/Oncology | Internal Medicine | Medical Oncology |
Source: CMS.