CMS Releases Interim Final Rule Establishing Reimbursement for Part B Drugs Based on International Pricing

The Centers for Medicare & Medicaid Services (CMS) released an advance copy of an interim final rule with a comment period announcing the establishment of the “Most Favored Nation Model” (the MFN Model) for reimbursement of drugs under Medicare Part B (the Rule) on November 20, 2020. While the official publication date in the Federal Register has not been announced, interested parties will have 60 days from publication in which to submit comments on the Rule.

The Rule and the MFN Model seek to implement a prior Executive Order directing CMS to “test a…model pursuant to which Medicare would pay, for certain high-cost prescription drugs and biological products covered by Medicare Part B, no more than the most-favored-nation price.” Arent Fox provided analysis of the original Executive Order here.

The Model, which will be conducted via the Center for Medicare and Medicaid Innovation (CMMI) will begin in January 2021, and unless successfully challenged or revised, will run for seven years. The goal of the Model is to align reimbursement under Medicare Part B for drugs covered under the Model — mainly drugs administered by a physician “incident to” a health care service — with benchmark pricing obtained from surveys of other countries, which CMS maintains will be less expensive than the current Average Sales Price (ASP)-based reimbursement methodology. The Model will use a “phased-in” approach such that Part B drugs will not be fully reimbursed based on international benchmarks until Year 4 of the Model; in Years 1-3, reimbursement will be calculated at a declining percentage of the drug’s ASP and an increasing percentage of the international benchmark price (referred to as the MFN Price), plus an add-on.

Who Is and Who Is Not Subject To the Model?

The Model is nation-wide in scope and is not limited to certain geographic areas or zip codes. Every “Medicare participating provider and supplier that submits a claim…for a separately payable drug that is an MFN Model drug furnished to an MFN beneficiary” is subject to the Model. However, the regulations do carve out certain providers and suppliers who are excluded from having to participate in the Model:

1. Children’s hospitals;
2. PPS-exempt cancer hospitals;
3. Critical access hospitals (CAHs);
4. Indian Health Service (IHS) facilities;
5. Federally Qualified Health Centers (FQHCs);
6. Rural Health Clinics (RHCs);
7. Hospitals that are not subsection (d) hospitals and are paid on the basis of reasonable costs;
8. Extended neoplastic disease care hospitals; and
9. For limited periods, certain acute care hospitals that participate in any model authorized under section 1115A of Act for which payment for outpatient hospital services is made on a fully capitated or global budget basis under a waiver of section 1833(t) of the Social Security Act (the SSA or the Act).

In addition, the Model contains exceptions for specific claims that will not be subject to reimbursement at the MFN Price:

1. Claims for MFN Model drugs furnished in the inpatient hospital setting under those circumstances where Part A would not pay for hospital services;
2. Claims for MFN Model drugs administered during an inpatient hospital stay or included on an inpatient hospital claim;
3. Claims administered by the Durable Medical Equipment Medicare Administrative Contractors; and
4. Claims paid under the End-Stage Renal Disease Prospective Payment System.

What Drugs Are and Are Not Subject To the Model?

Not all Medicare Part B drugs are subject to the Model. According to the Rule, CMS will identify the top 50 drugs “with the highest aggregate 2019 Medicare Part B total allowed charges” and use those drugs to comprise the MFN Model Drug HCPCS Codes List (the List). The List will be updated prior to the beginning of each year of the Model.

However, certain drugs are specifically excluded from the Model – notably oral cancer drugs and vaccines and drugs related to the COVID-19 pandemic:

1. Vaccines specified in section 1861(s)(10) of the Act (influenza, pneumococcal pneumonia, coronavirus disease 2019 (COVID-19), and Hepatitis B vaccines);
2. Radiopharmaceuticals;
3. Oral anticancer chemotherapeutic agents;
4. Oral anti-emetic drugs;
5. Oral immunosuppressive drugs;
6.  Compounded drugs;
7. Intravenous immune globulin products;
8. Drugs billed with HCPCS codes that describe a drug product that was approved under an abbreviated new drug application under section 505(j) of the Federal Food, Drug, and Cosmetic Act (i.e. biosimilars);
9. Drugs for which there is an Emergency Use Authorization (EUA) from FDA, or FDA approval, to treat patients with suspected or confirmed COVID-19; or
10. Drugs billed using a not otherwise classified (NOC) or not otherwise specified (NOS) billing and payment code.

Of note, the Rule applies only to reimbursement for drugs under Medicare Part B and not Medicare Part D. Medicare Part B primarily reimburses for drugs administered by a physician incident to a health care service while Medicare Part D primarily reimburses for self-administered drugs obtained by a beneficiary from a dispensing pharmacy.

How Is the MFN Price Determined Using International Benchmarks?

CMS will use data from non-U.S. member countries of the Organization for Economic Co-Operation and Development (OECD) as of October 1, 2020, that have a gross domestic product (GDP) that is at least 60% of the United States’ GDP on a per capita basis. CMS will obtain data from “one or more international drug pricing information data sources” that also meet certain standards as set forth in the Rule. The data sources must:

1. Utilize a standardized method for identifying drugs across countries within that data source, such as using internationally recognized scientific and nonproprietary product names;
2. Utilize a standard method for identifying drug forms that at a minimum distinguishes among injectable, oral, and other forms of a drug;
3. Be maintained by an organization that seeks to limit the lag inherent in data to no more than 180 days from the end of the calendar quarter for which drug pricing information is compiled to the time that the organization makes such updates available to users of the database; and
4. Contains international drug pricing information stated in U.S. currency.

How Is the Payment Amount Determined?

The most technical part of the Rule describes how the total allowed payment for a MFN Model drug will be calculated. In simplified terms, the payment will equal the MFN Drug Payment Amount, based upon data extracted from international data sources, plus an “alternative add-on payment.”

Using the international data sources described above, CMS will attempt to align the HCPCS long code description for drugs on the CMS designated List with the scientific names and dosage formulations from international sources, and will use “the extracted data that have complete package size information and only for dosage formulations that could be described by the MFN Model drug’s HCPCS code descriptor, as determined by CMS.” Following a series of technical adjustments and calculations, “CMS identifies the lowest GDP-adjusted country-level price for the MFN Model drug” and “the price identified is the MFN Model drug’s MFN Price.” Payment amounts will be updated on a quarterly basis.

As mentioned previously, CMS will phase-in the adoption of the MFN Price as follows over the duration of the Model:

1. Performance year 1: 75 percent applicable ASP and 25 percent MFN Price
2. Performance year 2: 50 percent applicable ASP and 50 percent MFN Price
3. Performance year 3: 25 percent applicable ASP and 75 percent MFN Price
4. Performance years 4 through 7: 100 percent MFN Price

What Other Adjustments Can Be Made To the Payment Amount?

The Rule contemplates that two additional adjustments could be made to the MFN Drug Payment Amount: (i) an acceleration of the phase-in approach if a drug’s ASP increases at a certain rate; and (ii) the award of an alternative add-on for separately payable doses of applicable MFN Drugs.

First, CMS will accelerate the phase-in of the MFN Price (meaning that a greater proportion of the total reimbursement will be comprised of the internationally benchmarked amount, rather than standard ASP) by 5 percentage points if: (a) there is a greater cumulative percentage increase in either the applicable ASP or any of the monthly U.S. list prices for the NDCs assigned to the MFN Model drug’s HCPCS code compared to the cumulative percentage increase in the CPI-U and (b) there is a greater cumulative percentage increase in either the applicable ASP or any of the monthly U.S. list prices for the NDCs assigned to the MFN Model drug’s HCPCS code compared to the cumulative percentage increase in the MFN Price.

However, CMS also may award an “alternative add-on payment amount for a separately payable dose of an MFN Model drug furnished to an MFN beneficiary by an MFN participant on a given date of service within a calendar quarter.” The add-on is intended to represent a flat amount per dose that will be the same for each model drug. Notably, beneficiaries will have no cost-sharing amount owed on the add-on amount.

Non-Payment Provisions of Note

While not summarized in full here, industry participants should note additional provisions of the Rule not explicitly tied to the calculation of Part B drug reimbursement, such as:

• The ability for CMS to grant, in its sole discretion, a “financial hardship exemption” to certain providers or suppliers otherwise required to participate in the Model;
• Monitoring and compliance activities which could include audits and even site visits;
• Record retention requirements; and
• Limitation of administrative or judicial review of certain aspects of the Model, including its termination.

Ripe for Legal Challenge

As the Trump Administration noted itself during last week’s press release, it expects trade associations and/or stakeholders such as pharmaceutical manufacturers and physician groups to mount a legal challenge to the Rule. The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 established the existing ASP-based reimbursement beginning in 2006. As such, one might argue statutory change was needed to alter the existing Medicare Part B reimbursement scheme and to do so through regulation violates the Administrative Procedures Act. Of course, the Rule is being implemented through the CMMI as a demonstration and CMMI does have broad authority pursuant to the Affordable Care Act to test new healthcare payment and service delivery models. Only time will tell if a court might deem seven years too long of a period for a demonstration.