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Last Minute Legislation: Most Favored Nation Drug Pricing Rule

In what seems like an eleventh-hour maneuver, the Trump administration moves forward implementing its latest drug pricing model. However, experts say it is fraught with complications and may get tied up in the courts. Our panel sorts through the issue and advises how stakeholders should prepare.

As the sun sets on his presidency, much of President’s Trumps visible efforts have been focused on the election loss, however, the administration continues to push other agenda items, including health-related policies. On November 20, Trump’s health care officials announced the implementation of an Interim Final Rule based on a model from the Center for Medicare and Medicaid Innovation (CMMI). The rule bases the price Medicare pays providers to administer certain drugs to the lowest price paid in selected developed nations. Mandatory participation by providers is set to begin January 1. 

We asked a panel of managed care experts to analyze the new rule, whether there is time to adjust to the new rule, and how events
are likely to play out as the courts get involved and President-elect Biden takes charge. Our experts include: 

  • Melissa Andel, principal, CommonHealth Solutions, LLC
  • Larry Hsu, MD, medical director, Hawaii Medical Service Association, Honolulu, HI
  • Charles Karnack, PharmD, BCNSP, assistant professor of clinical pharmacy at Duquesne University in Pittsburgh, PA
  • David Marcus, director of employee benefits, National Railway Labor Conference, Washington, DC
  • Gary Owens, MD, president of Gary Owens Associates, Ocean View, DE
  • Arthur Shinn, PharmD, president, Managed Pharmacy Consultants, Lake Worth, FL
  • F Randy Vogenberg, PhD, RPh, principal, Institute for Integrated Healthcare, Greenville, SC

Is there enough time to adjust to the new rule?

Dr Owens:  This cannot be accomplished by January 1. Trying such a significant payment reform initiative in the midst of a pandemic when health care providers and facilities are already stressed seems inappropriate and somewhat reckless. In essence, this undermines the current ASP-based [average sale price] reimbursement process for medical benefit drugs and replaces it with a payment methodology that may not result in drug manufacturer price reductions. If that is the case, many providers will be left underwater on reimbursement vs the actual price paid.

Mr Marcus: I agree. Given the shift in the economics of reimbursement, clinical alternatives will need to be explored and identified—many on a patient-specific basis. How the difference between medication cost and medication reimbursement will be absorbed also needs to be determined. Established protocols and treatments may be disrupted for medications that do not have exceptions under the rule. 

Dr Vogenberg: Too many issues are unresolved, including many from previous efforts by the Trump administration to address drug prices.

Dr Hsu: It is the end of the year, providers are busy taking care of patients, and, as Dr Owens mentioned, they are dealing with COVID-19. It is a difficult challenge that simply cannot be met. 

Dr Karnack: Exactly. Trying to implement this rule during the holiday season in the middle of a pandemic after a decisive presidential election outcome dooms it to failure. This action is nothing but another public relations attempt to enhance the president’s legacy and please his base. 

Dr Shinn: I’m not very optimistic nor do I think “most favored nation” benchmark pricing is a good idea. How do we know we are getting the correct data? Who is going to match the data? How often is the data updated? There are a lot of mechanics and technical issues to consider. 

Ms Andel: The adjustment on the manufacturer/provider side will be challenging. Questions need to be answered. What are the acquisition costs vis a vis the new payment? What adjustments will need to be made to make providers whole again? Will manufacturers be willing to make those adjustments? The differences between US and [other developed nations’] prices are going to vary product-by-product. Some drug prices may remain unchanged, or the providers may come out ahead due to the phase-in of the new payment rates and the flat add-on payment. But the impact will vary by drug and specialty, so it will be difficult to draw conclusions just looking at averages or one single product or one specialty.

Organized medicine is questioning the move. The executive director of the Community Oncology Alliance called it “brazen and unhinged.” How do you see it? 

Ms Andel: From an administrative standpoint, I think that it is pretty brazen to implement a mandatory, nationwide model that would overhaul payment for physician-administered drugs by skipping from an advanced notice of proposed rulemaking straight to an interim final rule with comment (IFRC). When the Obama administration proposed to implement nationwide, mandatory payment reforms using CMMI authorities, legitimate questions were raised as to whether that was something within CMMI’s authorities and aligned with Congressional intent. Now we have resurrected that idea and added the strategy of skipping a proposed rule and going straight to an IFRC. So, there are now legal questions surrounding the Administrative Procedure Act.

From a manufacturer and provider standpoint, this is an incredibly disruptive rule for a couple of reasons. One, there is little-to-no time to adjust the pricing and rebate structure in response to the new payments. Two, no one knows how long the new payments will be in force as Trump exits and Biden enters. Whether you are a large pharmaceutical manufacturer or a small physician practice, you are a business, and business generally prefer certainty over anything else.

Dr Owens: It seems to not be at all thought out. The savings on this are potentially significant, but they mostly accrue to the government and possibly private payers who adopt this approach. Savings to Medicare beneficiaries will only be for the 20% they pay on medical benefit drugs if they don’t have supplemental coverage or a Medicare Advantage plan. I think it will put providers in the middle of trying to do what is right for patients and trying to force manufacturers to lower their sales price to keep them whole. Basically, the government seems to be the one to gain on the backs of providers.

Mr Marcus: The intent is certainly not brazen—it has been a topic of discussion for a number of years, but the method is flawed and the timing is problematic in terms of both quality of care and economics. On the other hand, the provider community has not advanced proposals to deal with the issue of drug prices, so perhaps it should not be surprising that this is being foisted upon them.

Dr Hsu: Still, I go back to the timing. Making a decision at the end of the year, without much preparation, is challenging. 

Dr Vogenberg: It’s a political play, and vested interests stand to lose substantially.

Dr Karnack: I would add it is a political play by a lame duck president. Like many of this administration’s proposals, the actual impact of this rule is not going to be felt much by the consumer of medications.    

Dr Shinn: I think there are more impactful things that can be done. Drug prices makes up a relatively smaller percentage of the overall health care GDP, compared with hospital charges, for instance. I think the priority is misplaced. That is not to say that there shouldn’t be appropriate utilization and cost-conscious programs put in place. But let’s not forget other nonpharmaceutical areas deserve scrutiny too. 

Do you think that a court challenge will postpone implementation of the rule, rendering it pretty much moot? 

Ms Andel: I would not be surprised if the rule is blocked by the courts. I think there are enough legal questions to simply stop it from taking effect while the legal case plays itself out. Another unknown will be to see if there are changes in legal approach under the Biden Administration. We saw this with the transition from Obama to Trump with regards to ACA [Affordable Care Act] lawsuits.

What do you think Biden will do? 

Ms Andel: The new administration could change it, even before the end of 2021 if it really wanted to. If the rule is challenged in court, we don’t yet know if it would mean a wholesale block or something similar to the 340B case, where the court ruled against the government, but the cuts were allowed to stay in place while the appeals process played out. 

Dr Owens:  It will most certainly be challenged in courts. Like many things in this administration it seems to be done by fiat and not by any rational process. 

Dr Karnack: It will be litigated and postponed. 

How should payers and providers gear up for the new Trump rule should it be implemented?

Ms Andel: Providers need to look at the new Medicare payment compared to their acquisition costs and see if they can manage, even if that means switching to a different therapeutic alternative or shifting utilization to Part D or to another site of care. Commercial payers will need to look at their provider contracts, especially any that are benchmarked to Medicare payment rates. Because they would theoretically reset with the new payment amounts, payers need to determine if that will pose access issues for their members.

Mr Marcus: The task of gearing up for the rule is daunting.  Depending upon the nature of contracts between payers and providers, thought needs to be given to how to finance the difference between reimbursement for medications and the acquisition cost. Treatment options for alternative medications and procurement sources need to be identified. 

Dr Vogenberg: Even if implemented, there will likely be a transition period to allow for existing contracts to be modified or expire within a two- to three-year window to avoid medication access problems for patients.

Dr Owens: I don’t think payers will need to gear up for this. The chance of it seeing the light of day is remote. 

SPECIAL SIDEBAR: My Take on the ‘Most Favored Nation’ Pricing Rule

By Edmund J Pezalla, MD, founder and CEO, Enlightenment Bioconsult in Hartford, CT

The Trump administration has put forward an Interim Final Rule (IFR) on a Center for Medicare and Medicaid Innovation (CMMI) project to examine reduced costs for Part B drugs. This IFR deviates from some other proposals in that it does not create a weighted average of prices across several countries but chooses the lowest price from countries meeting certain GDP criteria. Additionally, the rule does not directly impact the ability of drug companies to set their own prices but impacts how much Medicare will reimburse providers for the 50 drugs on the list. Further, there are procedural issues which may be challenged in court.

Timing is certainly an issue. There is little time for physicians and physician groups to adjust to this new way of doing business:

  • Will providers be able to find drugs in the pipeline via distributors at the lower prices, will there be limits on how much a company will sell at lower prices?
  • The Center for Medicare & Medicaid Services (CMS) has said that some drugs will not be available (up to 19%) leaving some patients without medicine in mid-course and placing the burden on physicians or other providers to demonstrate eligibility for an exception
  • Providers, distributors, and specialty pharmacies will need to use up inventory on hand that was purchased at prices above the MFN price

Some patients may be denied appropriate or best care solely because of cost and not based on an overall assessment of value that would include clinical benefit. This appears to be capricious and unfair to patients. We should consider the case of CAR-T therapy which is significantly underutilized due to the inclusion of the therapy within an existing DRG and the inadequacy of the New Technology Add-on Payment (NTAP). This could be considered brazen, and perhaps unhinged. 

Court challenges will certainly come about based on the administrative issues. In a Trump administration, the government would fight such challenges. In a Biden administration, the attempts to end-run the rules and possibly the court cases could be taken as an opportunity to re-write this rule or abandon it in favor of other approaches. A court ruling against the rule will simply send it back to CMS for proper handling. That is when the Biden administration will take the opportunity to either quash it or significantly restructure. 

This impact on providers will be large if they need to either source drugs or change drug choices. The impact on Medicare Advantage plans is less clear. It is likely they will be able to receive some lower prices and that they will follow the flat physician fee. However, they could decide to handle the exceptions in their own way with some being cautious and not paying more than Medicare and other allowing more exceptions for the use of drugs that they consider higher value.

The impact on commercial plans is even less certain. We will likely see plans implement more site-of-care and narrow networks, or go to specialty pharmacy distribution in order to avoid attempts by providers to have commercial reimbursement make up for Medicare shortfalls.

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