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CMS Finalizes Most Favored Nation Medicare Drug Model

In a new interim final rule with comment period, the Centers for Medicare & Medicaid Services (CMS) announces a seven-year mandatory payment model set to go into effect Jan. 1, 2021. The Most Favored Nation (MFN) rule builds on an International Pricing Index (IPI) model that CMS first outlined in an advance notice of proposed rulemaking in late 2018. By issuing the interim final rule, CMS bypasses releasing a proposed rule, which would have provided an opportunity for public input before a final rule.

The seven-year demonstration falls under the authority of the Center for Medicare and Medicaid Innovation. The mandatory model will include most providers and suppliers who purchase and receive reimbursement for Medicare Part B drugs, such as physicians, nonphysician practitioners, hospital outpatient departments, and ambulatory surgical centers.

The model covers 50 single-source drugs and biologicals in the first year, expanding to include other Part B drugs in subsequent years. CMS will pay providers and suppliers for the included Part B drugs based on a phased-in MFN price, which will be determined using the lowest adjusted international price (MFN price). The MFN price will be determined by taking the lowest price for a given drug offered in any Organization for Economic Cooperation and Development country that has a gross domestic product per capita at least 60 percent that of the United States. CMS will phase in the MFN price by 25 percent each year until it is fully phased in by the fourth year. Providers will continue to receive a drug administration fee as well as a flat fee add-on amount of $148.73 that replaces the current add-on of 6 percent of average sales price (ASP). CMS will increase the add-on payment amount using an inflationary factor.

The MFN price on which Medicare reimbursement will be based replaces the current Medicare reimbursement amount for these drugs. For providers not in the 340B Drug Pricing Program, the current reimbursement amount is ASP plus a 6 percent add-on. For 340B hospitals, the payment rate since the 2018 Outpatient Prospective Payment System (OPPS) rate reduction has been 77.5 percent of ASP. In the calendar year 2021 OPPS proposed rule, CMS proposed to reduce the payment rate to 65.3 percent of ASP plus an add-on of 6 percent of ASP. In the interim final rule, CMS notes that the reimbursement rate for 340B hospitals will be the lower of the MFN price or 65.3 percent of ASP. CMS also notes there could be other potential implications for the 340B program, including changes to the 340B ceiling price.

Over seven years, CMS projects the model will reduce Medicare spending by $85.5 billion and Medicaid spending by $9.9 billion.

America’s Essential Hospitals is analyzing the interim final rule for comment and will send members a detailed Action Update in the coming days. CMS is accepting comments on the rule until Jan. 26.

Contact Senior Director of Policy Erin O’Malley at eomalley@essentialhospitals.org or 202.585.0127 with questions.

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About the Author

Shahid Zaman is a senior policy analyst at America's Essential Hospitals.

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