More on Reimbursement

American Hospital Association and PhRMA question legality of Most Favored Nation Model

The interim rule would cut drug reimbursements to hospitals by an average of 65% when fully phased in, the AHA says. 

Susan Morse, Managing Editor

The Centers for Medicare and Medicaid Services has announced changes to the way providers are paid for drugs in a Most Favored Nation Model.

The interim final rule with a comment period that was released on Friday would lower prescription drug costs by paying no more for Medicare Part B drugs and biologicals than the lowest price that drug manufacturers receive in other similar countries.

The MFN Model would focus on a set of 50 Medicare Part B drugs that encompass a high percentage of Medicare Part B drug spending.

CMS excludes certain types of drugs such as particular vaccines, oral drugs, multiple source drugs, and intravenous immune globulin products and drugs that treat patients with suspected or confirmed coronavirus disease. 

CMS plans to add drugs to the model annually to include drugs that rise to be among the top 50 drugs based on updated annual Medicare Part B spending, after applying certain exclusions. Drugs already included in the model will remain in the model, with limited exceptions.

The current Medicare Part B payment amount for separately payable drugs is typically based on the manufacturer's reported average sales price (ASP) plus 6% of the ASP as an add-on amount. For the MFN Model, CMS will test an alternative payment for included drugs that will be based on global prices and include a flat add-on amount for each dose. 

Instead of paying based on the price manufacturers charge in the U.S., Medicare is testing paying based on a formula that phases in the lowest adjusted international price for the drug. CMS wants to ensure that by January 2024, Medicare never pays more than the MFN Price for an included drug when furnished by a participating provider or supplier, CMS said.

Medicare will pay MFN participants a flat add-on payment for each dose that is uniform for all included drugs in the MFN Model. The per-dose add-on for the first quarter of 2021 will be $148.73.

CMS said beneficiaries would pay lower coinsurance for these high-cost Part B drugs and will not pay coinsurance on the add-on payment. 

The MFN Model would begin on January 1, 2021 and operate for seven years until December 31, 2027. CMS said it would monitor and evaluate the impact of the MFN Model on beneficiary access to drugs, program costs and the quality of care.


The American Hospital Association is against the payment change that would give providers a flat add-on amount for each dose of an MFN drug, instead of a percentage of each drug's cost. The proposed rule would cut drug reimbursements to hospitals by an average of 65% when fully phased in, the AHA said. 

"Hospitals would have to absorb losses while drug companies are free to continue their trend of charging exorbitant prices," said Tom Nickels, AHA executive vice president. "Instead of holding drug companies accountable for drug prices, it slashes reimbursement to hospitals for drugs. In addition to the continued concerns we have expressed about the impact this model has on the 340B drug pricing program, we strongly question whether attempting to institute such a sweeping and controversial policy in an interim final rule is legally permissible."

PhRMA also came out against the interim rule, especially during the COVID-19 crisis, and also indicated it was illegal. 

President and CEO Stephen J. Ubl said, "It defies logic that the administration is blindly proceeding with a 'most favored nation' policy that gives foreign governments the upper hand in deciding the value of medicines in the United States. History proves that when governments take unilateral action to set prices, it disrupts patient access to treatments, discourages investment in new medicines and threatens jobs and economic growth. 

"PhRMA is considering all options to stop this unlawful onslaught on medical progress and maintain our ability to win the fight against COVID-19," Ubl said.


"This is a last dash to make policy through regulation before the new administration," says Stephanie Kennan, senior vice president, Federal Public Affairs at McGuireWoods Consulting. "The most-favored-nation price rule comes after two years of internal debate and intense lobbying against it."

The Department of Health and Human Services and CMS released this and two rules on Friday. One rule ends pharmacy benefit manager rebates to insurers, and the other relaxes restrictions on physician referrals in the Stark Law

Big Pharma sees the rebate rule as saving beneficiaries money, while opponents say it will only increase drugmakers' profits and do nothing to lower drug prices. 

In comparison to the final rules, the most favored nation model is only proposed, with a question of whether the interim rule will make it through the vetting process before President-elect Joe Biden takes office.

HHS said one of the largest drivers of increasing Medicare spending is the growing prices for physician-administered separately payable Medicare Part B drugs, which have risen an average of 11.5% annually since 2015, with total spending approximately $30 billion in 2019. 

The proposal is part of President Trump's mandate to lower drug costs and a September 13 executive order, "Lowering Drug Prices by Putting America First."

Twitter: @SusanJMorse
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