Final Ruling on Medicare Most-Favored-Nation Drug Pricing Set for Federal Register Publication

Drug Pricing

The interim final ruling on most-favored-nation status for drug prices is expected to be published on November 27th in the Federal Register by the Centers for Medicare & Medicaid Services (CMS) at the Department of Health and Huma Services (HHS).

The interim final rule aligns payment for Medicare Part B therapeutics with international prices and removes incentives for physicians to prescribe more expensive drugs and biologics. This is an attempt to contain the growth in Medicare Part B spending without compromising healthcare quality.

The most-favored-nation (MFN) model will be in place between January 1, 2021, and December 31, 2027, allowing time for CMS to evaluate its effect on access to therapeutics, their costs, and quality of care.

When this model was issued as an Executive Order on September 13, 2020, the Alliance for Aging Research called it “a scam for seniors.” When the plan was released recently, the Alliance feared it would ration therapies, making some patients “too expensive to receive care.” About the same time, BIO denounced it as political revenge coming, as it did, soon after the Presidential election.

CMS maintains otherwise. It points out that high drug costs are a needless financial burden on the healthcare system and on patients and that this MFN model was developed based on public comments to the Trump Administration’s 2018 “Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs.”

The problem the plan seeks to address, according to the Federal Register announcement, is that high drug prices are adversely affecting Medicare beneficiaries and are accelerating significantly faster than other Medicare Part B services. As it notes, “Prices in the U.S. for Medicare Part B drugs with the highest Medicare spending far exceed prices in other countries.” Specifically, one study of 27 drugs found the U.S. pays an average of 1.8 times more than other countries to acquire the same drugs and biologics. Another study found U.S. prices were 2.05% higher than comparator drugs in other high-income countries,

The U.S. biopharma industry says high prices are needed in the U.S. to support continued innovation, and that drug prices are only a fraction of a patient’s overall health costs.

But, prices have increased dramatically. A study of 600 brand-name drugs, conducted at the University of Pittsburgh Center for Pharmaceutical Policy and Prescribing (CP3) earlier this year, found that list prices increased 159% between 2007 and 2018. When discounts were factored in, the net prices still had increased by 60% – more than three times the rate of inflation for that period (26.77%).

For all drugs – not just those reimbursed through Medicare – expenditures grew 5.4% in 2019, according to a report in the American Journal of Health-System Pharmacy. Non-federal hospitals’ drug expenditures were $36.9 billion in 2019 (up 1.5% from 2018), driven by price increases and new products. In non-federal clinics, drug costs were $90.3 billion (up 11.8% from 2018), driven by new products and increased utilization. The same study predicts overall prescription drug spending will increase 4-6% in 2020.

Within Medicare, drug expenses rose 55% percent between 2015 and 2019, increasing per capita spending from $583 to $900. Notably, 19% of Medicare recipients have no supplemental insurance plans. “Because biologics account for about 77% of Medicare Part B fee for service prescription drug spending, there has been little opportunity to reduce Medicare Part B spending growth through generic substitution,” according to the final ruling. 

Others outside the Trump Administration also are eager to curb escalating drug prices. Presumptive President-elect Joe Biden proposed to allow HHS to negotiate directly with pharmaceutical companies for lower drug prices, as well as to establish reference pricing based on international prices for innovative biotech drugs that lack competition. Other points in his plan include linking drug price increases to inflation, allowing individuals to purchase drugs from abroad, allow generics to come to market sooner, and lower the Medicare enrollment age to 60.

One year ago, recognizing the burden high drug prices place on their patients, the Interim Meeting of the American Medical Association (AMA) House of Delegates adopted principles to lower prescription drug prices. The AMA called for arbitration for therapeutics that had “insufficient competition…high list prices… or unjustifiable price increases.”

Currently, Medicare Part B drugs are reimbursed at the average sales prices charged to certain U.S.-based purchasers, plus a mandatory 6% add-on, thus negating the benefit of any substantial discounts received by other nations, the Federal Register announcement noted. It also encourages the use of more expensive drugs, which increases the value of that 6% add-on.

The most-favored-nation (MFN) model plans to reimburse drug manufacturers at the lowest adjusted price paid by any nation in the Organisation for Economic Co-operation and Development (OECD) that has a gross domestic product per capita that is at least 60% that of the U.S. GDP per capita. This model also plans to remove incentives to use most expensive drugs through a flat per-dose add-on payment (rather than the 6% paid now) and includes reducing beneficiary cost-sharing on MFN model drugs.

Initially, the MFN model will focus on 50 single-source drugs and biologicals that account for a high percentage of Medicare Part B drug expenditures.

The CMS Office of the Actuary (OACT) estimates cost savings of $85.5 billion broken down as “$64.4 billion in Medicare Part B fee for service benefits, $49.6 billion in Medicare Advantage payments, and $9.9 billion in Medicaid spending ($5.7 billion in federal payments and $4.3 billion in state payments).”

At an individual level, the OACT predicts Medicare Part B beneficiaries will save a total of $28.5 billion in lower Medicare premiums and also will experience lower coinsurance premiums.

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