Quick Summary:
- HHS released an Interim Final Rule to implement a pilot project using international prices in Medicare Part B
- Interim Final Rule: Finalized, but with opportunity for public comment
- Program was set to begin on January 1, 2021
- Multiple court decisions and the Biden Administration have put implementation on hold
Deeper Dive:
In September 2020, former President Trump issued an Executive Order requiring HHS continue work to implement a Medicare Part B international price index proposal that the Administration released in October 2018. At that time, HHS posted an advanced notice of proposed rulemaking to solicit input on a proposed pilot project to test the use international prices to reimburse providers for some Part B medications. The proposal would utilize third-party vendors to negotiate Part B drug prices and manage distribution to and reimbursement of Part B providers. Under the proposed pilot, providers would be paid a set fee for “storing and handling” the drugs. The fee would not be tied to the price of the drugs.
That Executive Order was officially published after an almost two-month delay—and included some significant modifications from the initial draft released by the White House. The published version revoked the previous one and expanded the scope of the Order to also include Part D drugs. However, applying international pricing to Part D drugs likely would violate the noninterference clause of the Medicare Part D statutes that say the Secretary of HHS cannot “interfere with the negotiations between drug manufacturers and pharmacies and PDP sponsors” and cannot “require a particular formulary or institute a price structure for the reimbursement of covered part D drugs.”
But, unlike the former President’s Executive Order, the Interim Final Rule released by HHS in November closely follows their initial proposal and applies only to Part B drugs. The pilot project was to be tested in all states and continue for seven years, starting January 1, 2021. Participation is mandatory for all providers that receive fee-for-service payments for applicable drugs under Medicare Part B.
The project will initially include 50 single-source drugs, biologics, and biosimilars that make-up a high portion of Medicare Part B spending. Using a most-favored-nation (MFN) approach, HHS will determine the lowest adjusted price paid by an Organisation for Economic Co-Operation and Development (OECD) country with a gross domestic product (GDP) of at least 60% of the U.S.’s GDP. The international prices will be gradually phased in during the first four years of the pilot project. For the first four years, 25% of the Part B reimbursement rate for drugs in the pilot will be the international price and 75% will be ASP. For years 4 – 7 of the pilot project, Part B reimbursement will be 100% of the MFN price. Drugs will be added to the project each year based on Part B spending, but once a drug is in the project, it will remain in it for the duration.
The list of drugs and MFN prices for the first quarter of the pilot project is available here. The first 50 drugs in the pilot project are in the hematology/oncology, ophthalmology, neurology, allergy/immunology, gastroenterology, urology, orthopedic surgery, cardiology, and rheumatology categories. Finally, provider reimbursement for the administration of drugs in the pilot project will be a flat fee per dose administered (based on HCPCS billing units reported). Beneficiary cost-sharing will be based only on the MFN Price not including the provider fee add-on payment amount.
The pilot project is being run through the Center for Medicare and Medicaid Innovation (CMMI), which was created by the Affordable Care Act. CMMI is the portion of HHS that is managing various pilot projects in Medicare, like Accountable Care Organizations, medical homes, and bundled payments.
Insights:
During the public comment period for the initial MFN Price proposal, HHS received over 2,700 written comments, many of which opposed the idea. In addition to what appears to be the result of a large grassroots campaign with many individual commenters opposing the proposal for imposing “socialist” prices into the U.S., many organizations representing healthcare payers, manufacturers, providers and patients also raised concerns with the proposal. Commenters’ concerns included the decreased role of the market and increased government control of drug pricing and sales; putting innovation at risk; and increased complexity in the supply chain.
The initial proposal HHS released in 2018 included the use of third-party vendors to administer purchasing and reimbursement for drugs subject to MFN Prices. This was in part because the initial proposal was to test the idea in half of the country. Under the initial proposal, the third-party vendors would handle distribution and reimbursement only for the geographic areas subject to the pilot project, while the rest of the country would operate as usual.
Needless to say, the initial proposal created a far more complicated system than what has been finalized by HHS. However, now it is much less like a “test”, since the MFN prices for drugs in the project will apply nationally – leaving CMMI without a control group. CMMI says it will use beneficiary surveys and analyses of access to evaluate whether this pilot project is effective. The pilot project is designed to test whether using MFN prices can “control unsustainable growth in Medicare Part B spending without adversely affecting the quality of care for beneficiaries.”
Unfortunately, HHS’s own assessment of the impact of the MFN model shows that Medicare beneficiary access to the Part B drugs that are part of the model will be adversely affected. HHS envisions manufacturers will respond to the MFN pricing in one of three ways: 1) charging a lower price to providers subject to the MFN pricing; 2) not adjusting their prices; or 3) altering their international prices. HHS then projects that providers subject to MFN pricing will either choose to accept the lower payment rates so they can “retain utilization of other associated services,” or not provide the medications subject to the MFN.
Under HHS’ anticipated scenario, patients of practices that choose to not provide medications subject to MFN pricing could either change practices or go without the medication. Because the project is national, it will be difficult for beneficiaries to find a provider not subject to the MFN pricing. HHS estimates that in 2021, 20% of Part B providers will not continue to administer medications subject to the MFN pricing. The Administration estimates that in 2021, of the beneficiaries impacted by their provider’s decision to not administer a medication subject to MFN pricing: 1% will switch to a medication not subject to MFN price; 10% will switch to a 340B provider (which are not subject to MFN pricing in the first year), and 9% will have no access to the medication at all. As the model progresses and the portion of the Part B reimbursement rate that is based on the MFN price increases, HHS estimates more beneficiaries will go without access to medications: 19% in 2023 through 2027. HHS estimates that total Medicare savings will be $85.5 billion but does not take into account the potential increased healthcare costs resulting from beneficiaries not obtaining medications.
An interesting wrinkle in HHS’s decision to pursue this idea through CMMI is that the Trump administration supported a significant legal challenge to nullify the Affordable Care Act (ACA)—which includes the authority being used to implement the MFN Price project. In November 2019, the Supreme Court heard oral arguments in the case and is expected to (again) make its decision about the constitutionality of the ACA this summer. The mechanism and authority through which the Administration is implementing this project would be eliminated if the entire ACA is struck down by the Court.
A more immediate wrinkle in implementation is that multiple lawsuits have been filed against the Administration regarding this pilot project. As of this writing, a federal court has required implementation to be put on hold until the Administration completes a full notice and comment process. At the same time, the question of whether the Administration has any authority to pursue the pilot project is being reviewed in another lawsuit. The court, in that case, has also required a temporary delay in implementation so it can consider the issue of HHS’ authority.
Timeline:
Although the rule is technically final and was effective on the day it was released (November 27, 2020), the Trump Administration accepted public comments through January 26, 2021. But since a federal judge required a delay implementation until completion of the public notice and comment period, it has not yet taken effect. In the meantime, the Biden Administration has transitioned into leadership and put on hold all federal regulations not yet in effect so the new team can review and determine whether to move forward. Regarding this policy, the Biden Administration said it will not be implemented “without further rulemaking.”
We will continue to monitor this policy as well as the others released at the end of the Trump Administration and provide updates to our blogs. In the meantime, contact Viking Healthcare Solutions to learn more about how our commercialization model can work for your product launches and help overcome market access challenges.
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