Most Favored Nation Pricing Is More Political Whitewash

Pharmacy Practice in Focus: Health SystemsJanuary 2021
Volume 10
Issue 1

Health systems get just 36 days to make major administrative, information system, and operational changes amid the pandemic’s peak.

On November 27, 2020, the day after Thanksgiving, the US Department of Health and Human Services (HHS) published the interim final rule with comment period (IFC) for the Most Favored Nation (MFN) Model (42 CFR Part 513) of the Centers for Medicare & Medicaid Services (CMS).

The effective date of the regulations was that day, with an implementation date of January 1, 2021. That is correct: just 36 days to make major administrative, information system, and operational changes amid the height of the worst coronavirus disease 2019 surge since the start of the public health emergency. It is truly breathtaking that the administration can be this tone-deaf and blind to what is happening in this country and the devastating impact that the pandemic is having on the health care providers who will be most adversely affected by this ill-conceived and, one might even say, idiotic policy decision. This very complex rule change is bypassing usual rulemaking administrative processes on the basis that an Advance Notice of Proposed Rulemaking was issued in October 2018, and it is being implemented pursuant to the Executive Order on Lower Drug Prices by Putting America First issued on September 13, 2020.

In a 15- to 20-second sound bite, it sounds appealing to the average citizen. Americans should not have to pay more for high-cost prescription drugs than what similar developed nations are paying for the same drug (MFN price). That would be the case if the model led to a change in the cost of prescription drugs, but it does not. This is just another example of cost shifting with no real impact on the cost of health care or pharmaceuticals. It is the worst kind of political whitewash. The out-of-pocket costs for Medicare fee-for-service (FFS) patients should decrease, which is a good thing. The pharmaceutical industry is not required to change its business practices, but the ambulatory clinics, hospitals, and physician offices that have been hardest hit by the pandemic are required to absorb the entire financial impact of this “price reduction.” That is, the MFN model only changes what CMS will reimburse providers for providing care, not the actual cost of the drug, because HHS does not have the authority to force the industry to change drug prices.

Without diving into all the complex details of this 80-page IFC, CMS will establish the MFN price for 50 high-cost drugs separately reimbursable under Part B for Medicare FFS patients. The greatest impact is on health systems. There are a few exceptions, including critical-access hospitals, federally qualified health centers, and some cancer and children’s hospitals, among others. The MFN price will be based on a complex calculation of the lowest gross domestic product (GDP)—adjusted price among member countries of the Organisation for Economic Co-operation and Development (OECD), with a per capita GDP of at least 60% of the US per capita GDP. The model has a 7-year performance period, with a phase-in period that reaches the full MFN price in year 4. For example, the 2021 price will be blended based on a 75% contribution of the US average sales price (ASP) and a 25% contribution of the MFN price.

There is also a flat rate add-on payment set at 6.1224% of the blended ASP for the 50 high-cost drugs affected, which starts at $148.73 per dose. The rationale for this flat alternative add-on payment is to remove the incentive for providers to prescribe high-cost drugs more frequently, because the government believes the “unscrupulous” provider community cannot be trusted to order what is best for patients. This type of flat fee ignores some basic financial principles of providing high-cost therapies, such as the cost of cash flow delays and inventory carrying costs. It also introduces an administrative billing challenge because the flat fee is “per dose,” whereas most drugs are billed based on a coding system billing quantity, a health care common procedure that is not applicable to the separate charge for wasted drugs and cannot be included in the calculation of patient contribution. There are many difficultto- implement aspects of this model, which are likely to be even more harmful to providers if not done correctly.

There are several foreseeable negative impacts of this model. Besides the obviously large and potentially devastating financial impact on the affected providers, it is also likely to lead to loss of access to care. Private practices and small community providers that are critical in rural and underserved areas will not be able to sustain the financial impact of the MFN model and may either close or be forced to refer patients needing treatment to larger, urban-based provider networks. This will have a negative impact on patients with cancer, chronic autoimmune, or hematologic diseases due to loss of access and the burdens of long commutes for care, hurting the patients who can least afford these burdens.

The pharmaceutical industry can respond in 3 ways. First, it could do nothing and continue to raise prices in the United States every 6 to 12 months, which is likely. Second, it could lower prices to be more in line with MFN model prices, which is unlikely. Finally, it could renegotiate pricing structures in OECD nations to increase MFN model pricing. This could potentially include back-end reconciliation methods to comply with governmental price controls existing in many OECD nations but in a way that takes it outside the MFN model price calculation. This third option is also likely. It is safe to say that this model will not have a big impact on the actual cost of pharmaceuticals in the United States. It is ironic that governmental price controls imposed on the pharmaceutical industry are considered a political “third rail,” but we are willing to co-opt governmental price controls of other developed nations to set payment policy.

This is the epitome of bad policy. Hopefully, by the time this is published, there will be an injunction or administrative decision delaying implementation until the new administration can reconsider the wisdom of this policy moving forward.

Curtis E. Haas, PharmD, FCCP, is the chief pharmacy officer for the University of Rochester health care system in New York.


42 CFR Part 513. Most Favored Nation (MFN) Model. US Department of Health and Human Services. November 27, 2020. Accessed December 14, 2020.

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