Medicare's 'Most Favored Nation' Drug-Pricing Rule in Limbo Save

The fate of the Trump administration's "most favored nation" (MFN) rule for bringing down prescription drug prices remains uncertain as President-elect Joe Biden prepares to assume office later this month.

On Sept. 13, 2020, President Trump signed an executive order saying that the Department of Health and Human Services would test payment models for Medicare Parts B and D in which Medicare would pay for certain drugs not more than the "most favored nation" price, defined as "the lowest price, after adjusting for volume and differences in national gross domestic product, for a pharmaceutical product that the drug manufacturer sells in a member country of the Organisation for Economic Co-operation and Development that has a comparable per-capita gross domestic product."

The executive order Trump signed in September replaced a similar one signed on July 24; that order gave pharmaceutical manufacturers until Aug. 24 to come up with an alternative to the "most favored nation" plan. However, no alternative materialized, resulting in the September order, which was to take effect on Jan. 1.

The Centers for Medicare & Medicaid Services (CMS) then issued an interim final rule on Nov. 20 to implement the order, but provided very little time for interested parties to comment on the rule, in apparent violation of requirements in the federal Administrative Procedures Act (APA).

Lawsuits Filed

Unsurprisingly, not everyone was happy with the order. The Association of Community Cancer Centers, the Pharmaceutical Research and Manufacturers of America, and other groups sued in federal court, and Judge Catherine Blake of the U.S. District Court for the District of Maryland granted a 2-week temporary restraining order on Dec. 23, which she later extended until Jan. 20.

"The plaintiffs have shown an abundance of irreparable harm that is likely to occur absent an injunction," Blake wrote. "The MFN rule in its first year would reduce Medicare drug expenditures by nearly $5 billion, and accordingly would drastically reduce revenues for providers, many of whom already operate on thin profit margins."

In addition, Blake agreed with the plaintiffs' contention that the government did not provide enough time for stakeholder input. "Agencies have broad discretion, within the confines of the statutory authority delegated to them by Congress, to sift competing policy proposals and promulgate regulations," she wrote.

"And CMS's concerns about the cost of Medicare Part B drugs may eventually justify adopting a most favored nation rule to test an alternative pricing scheme. But the 'good cause' rationale advanced by CMS is insufficient to dispense with the notice and comment procedures which are required under the Administrative Procedures Act and which are essential to ensuring civic participation in the rulemaking process as well as informed agency decision-making," she said.

Blake was not the only federal judge to look unfavorably on the rule; on Dec. 28, Judge Vince Chhabria of the U.S. District Court for the Northern District of California granted the California Life Sciences Association a preliminary injunction that stopped CMS from implementing the MFN rule because of its failure to follow the APA. Unlike Blake's temporary order, under Chhabria's ruling CMS can't put the rule into effect until it follows all of the APA's notice and comment requirements.

Headache for Physicians

Obviously, pharmaceutical companies don't want to see their revenues decrease, so their reasons for opposing the rule are clear. But why are physicians upset? It's because of the way drug reimbursement works under Medicare Part B.

Under that program, physicians buy the drugs directly from the manufacturers, and then get reimbursed by Medicare, so if Medicare drops the price it pays, it's the doctors -- not the drug companies -- who will see their revenues drop, unless drugmakers agree to drop their prices accordingly.

"The proposed solution, at best, only indirectly confronts the problem," said Clifford Hudis, MD, chief executive officer of the American Society of Clinical Oncology. "Instead, for example, of saying that prices have to be fixed and controlled, which I readily admit would be a political challenge in the U.S., what they've done is put a squeeze on the buyers of the drugs, who are honor- and duty-bound to do what's best for their patients at the same time."

Hudis added that not all oncologists and all practices operate on the Part B payment model described above, "but conventional freestanding practices do ... Most oncologists practice in that setting and half of cancer care is delivered in that setting."

Paul Ginsburg, PhD, director of the USC-Brookings Schaeffer Initiative for Health Policy, commented that "for a drug mostly used for elderly patients, it's probably pretty likely that manufacturers will cut the price so the doctor won't lose money administering it. On the other hand, if the drug has substantial privately insured use by under-65 people, those physicians might decide, 'Sorry, I'm not going to administer this drug to Medicare patients because the company might not cut the price.'"

Alternatives to MFN

There are a number of alternatives the government could consider to cut drug prices, Ginsburg added. For instance, in the case of a drug that has both a brand-name version and a biosimilar, the government "could decide they're going to pay the same" price whether the physician uses the brand-name version or the biosimilar, thus giving doctors an incentive to use the lower-priced drug. "Or you could even say, we'll let the physician charge more for handling the lower-priced drug than the higher-priced drug."

Nadeem Baig, MD, a gastroenterologist in Oakhurst, New Jersey, and a member of the Digestive Health Physicians Association (DHPA) board of directors, said the association was "distressed, to say the least, with the rushed process of this ... interim final rule proposed last month, given the nature and lack of really appropriate input of stakeholders in this process, and skipping of many steps in the process of rule-making at the administrative level. We fear our patients would suffer."

He noted that "by the government's own estimates, one in five patients who get these life-altering drugs ... would have lost that access," according to a chart on p. 184 of the interim final rule. "A key driver of their savings was the people who were not getting the drugs," Baig said.

Patients who couldn't get the drugs from an office-based gastroenterologist might have to scramble to find an alternate site, and "some patients would be driven to hospitals -- which are full of COVID -- to get these drugs, and usually hospitals charge a higher price to infuse these drugs," he added.

The fate of the MFN rule is unclear; Ginsburg said he doubted that the Biden administration would appeal the ruling in the California case, so the rule could go away indefinitely if the new administration decides not to pursue it any further.

Baig said, "We're curious what the Biden administration is going to do," as well as whether the soon-to-be-Democratic-controlled Senate will address the issue. "Our goal is focused on making sure patients get access to lifesaving drugs ... Beyond that, it's too early to speculate."

(Editors Note: The ACR and CSRO are also very involved with MFNR, read below

Most Favored Nation Drug Pricing Rule Will Harm Patient Access, Jeopardize Practice Stability, Rheumatology Leaders Warn )

CSRO has announced that In addition to the temporary restraining order issued by a Maryland judge, the U.S. District Court for the Northern District of California has granted an injunction against the implementation of the MFN interim final rule that would have gone into effect on January 1, 2021.  Read their position here.