The Trump administration has issued an interim final rule with comment period setting up its most favored nation pilot program linking CMS reimbursement prices to those in foreign countries and setting a flat fee for provider administration of these therapies. If it is implemented, oncology drugmakers could bear the brunt, an analysis by HRI found.
The most favored nation pilot would apply to the 50 most expensive Medicare Part B drugs (including biosimilars but excluding vaccines) in 2019 and would require participation from providers, beneficiaries and suppliers that participate in the Medicare fee-for-service program. The pilot would start nationally on Jan. 1 and run for seven years. CMS estimated it will save $87.8 billion in federal, state and beneficiary spending over that period.
CMS will reimburse for Part B drugs at “comparable amounts to the lowest adjusted price” paid by any country in the Organisation for Economic Co-operation and Development (OECD) with a GDP of at least 60% of the US GDP per capita. CMS has identified 22 countries that meet these criteria: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Iceland, Ireland, Israel, Italy, Japan, Luxembourg, Netherlands, New Zealand, Norway, South Korea, Spain, Sweden, Switzerland and the UK (see page 68 of the rule for the list).
To calculate the reference price, the agency would use list prices, sales and/or volume data “as available,” and/or ex-factory prices (prices paid to the manufacturer by wholesalers and other distributors) in the selected countries.
However, in the rule, the agency states that “confidential manufacturer rebates will not likely be accounted for within these data; therefore, existing sources for international drug sales data may overstate actual prices realized by manufacturers.”
Starting in January, CMS would use international and sales volume information from “as early as the third calendar quarter in 2020.” If a drug moves into the top 50 during a given calendar year, it would be added to the pilot the following year.
For physicians, the pilot would test a flat add-on amount for each dose of a drug covered by the model rather than the current payment that is based on a proportion of a drug’s existing average sales price (ASP). In the first year, the add-on payment will be 6.1224% of the historical applicable average sales price for 2019 for the selected drugs and then will be increased using an inflationary adjustment for subsequent quarters; the payment will not be recalculated as the drug prices change. Beneficiaries will not pay for the add-on payment.
(The administration also finalized another rule outlined in a July executive order, the safe harbor rule to pass drug rebates on to Medicare beneficiaries at the point of sale. The rule would take effect Jan. 1, 2022, and would still permit the use of discounts to gain formulary access. “Point-of-sale reductions in price can be conditioned on formulary placement and nonetheless qualify for protection under the new safe harbor,” the rule states. The rule does not address whether the removal of safe harbors would raise Medicare premiums. Trump’s July executive order made the rule contingent on it not increasing premiums.)
HRI’s analysis of the most favored nation pilot suggests that it would have an outsize effect on oncology products. Part B is limited to infused drugs administered in a physician’s office or outpatient setting.
Specifically, 58% of the drugs included in the pilot were classified as hematology/oncology, followed by rheumatology (14%) and neurology (8%). However, two ophthalmology drugs were in the top 10.
With fewer than 60 days remaining in Trump’s term, the dump of rules is unsurprising (see George Washington University’s analysis showing the practice going back to the Carter administration).
While the most favored nation pilot is set to start before Inauguration Day (Jan. 20), it is likely to face legal challenges.
When the rule was first proposed in 2018, questions swirled around CMS’ legal authority to mandate such a large and sweeping pilot program. Industry groups have filed a lawsuit to block the administration’s drug importation rule, which was finalized in September.
During the Obama administration, CMS proposed a pilot of new payment methods for Part B drugs, including reference pricing and a flat fee for physicians. However, the proposal was eventually killed after Congress questioned CMS’ authority to implement such a program and patient, physician and industry groups pushed back.
It’s uncertain whether president-elect Joe Biden’s administration will seek to implement the most favored nation rule. While his healthcare agenda includes policies such as allowing CMS to negotiate Medicare drug prices and limiting drug launch prices, a Democratic-sponsored bill in the House, HR 3, includes language similar to the most favored nation pilot to control drug launch prices.