WASHINGTON — The Trump administration finalized several regulations that officials said were aimed at lowering drug prices for Medicare beneficiaries, but the rules have already come under fire from physicians, drug companies, and health insurers.
The “Most Favored Nation” interim final rule, announced Friday, allows the Department of Health and Human Services (HHS) to test a payment model for Medicare Part B in which Medicare would pay for certain drugs not more than the “most favored nation” (MFN) 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 Cooperation and Development that has a comparable per-capita gross domestic product.”
A Physician Payment Component
The rule “will transform the way the U.S. government pays for drugs, to end global freeloading on the backs of American citizens and American patients,” President Trump said in a press conference at the White House on Friday. “Until now, Americans have often been charged twice as much for the exact same drug as other medically advanced countries.” But with the new rule, “instead of paying the highest price on the list, we’ll pay the lowest price, leading to colossal savings for all Americans.”
The payment model also has a physician payment component, Seema Verma, administrator of the Centers for Medicare & Medicaid Services (CMS), said on a phone call with reporters. Under current law CMS is required “to pay a percentage of the drug’s cost to the physicians who administer them, generally based on a flat 4.3% add-on of the average sales price,” Verma explained. “This means taxpayers and beneficiaries pay physicians based on the cost of the drug that they choose. This incentive has led to some unintended consequences, including, in some instances, providers using a more expensive drug over an equally safe and effective alternative.”
Under the new program, “for the 50 of the most expensive Part B drugs and biologics, CMS will pay an MFN drug price phased in over time,” she continued. “The MFN will be phased in at 25% per year over the first 4 years of the 7-year model. Starting in 2024, CMS will pay 100% based on the price in the most favored nations through the remainder of the model. In addition, instead of the 4.3% add-on, we will pay physicians and hospitals a fixed add-on payment for the administration of the drug.” The payment model will begin on Jan. 1, 2021.
“To be clear, this amount will be higher on average than most physicians’ current percentage-based add-ons, but it will remove the incentive to prescribe more expensive drugs in order to be paid more,” said Verma. “We will adjust the per-dose add-on quarterly for inflation.” Beneficiaries won’t have to pay co-insurance for the add-on payment, she added. In a fact sheet on the regulation, CMS sets the fixed add-on payment for administering the drugs at $148.73.
Some providers will be excluded from the payment rule, “including some of the larger national cancer centers and rural providers, like critical access hospitals and federally qualified health centers,” said Verma. “We are also not including Medicare Part B vaccines, oral drugs, drugs that treat COVID-19, and some drugs that help bolster a patient’s immune system.”
“Brazen and Unhinged”
The physician payment portion of the model did not sit well with the Community Oncology Alliance (COA), which represents independent oncology practices. “The ‘most favored nation’ rule that the president announced is brazen and unhinged,” COA executive director Ted Okon said in a phone call Friday. “It is a dangerous political stunt.” He noted that the rule was released at the last possible moment, since it requires a 60-day comment period before it can become fully effective, and the Biden administration will begin on January 20.
The $148.73 add-on payment for drug administration “does not come close to covering all of the unreimbursed aspects around the drug — the procurement, the inventory, and the storage,” he said. “It is what is essentially close to babysitting rates.” And oncology clinics are already struggling financially due to the pandemic, Okon said.
Not surprisingly, the Pharmaceutical Research and Manufacturers of America (PhRMA) also was not pleased. Despite the drug industry’s success in developing vaccines to fight COVID-19, “the administration is willing to upend the entire system with a reckless attack on the companies working around the clock to end this pandemic,” PhRMA president and CEO Stephen Ubl said in a statement. “PhRMA is considering all options to stop this unlawful onslaught on medical progress and maintain our ability to win the fight against COVID-19.”
President Trump also announced a final rule on transferring drug rebates paid to pharmaceutical benefit managers (PBMs) directly to consumers. This action “will save American seniors billions of dollars by preventing middlemen from ripping off Medicare patients with high prescription prices,” said Trump. “Currently, drug companies provide large discounts on the price of prescription medicines, including nearly $40 billion in rebates to Medicare Part D plans alone. Yet often middlemen stop those discounts from going to the patients, who need it the most, so the patients are going to be now getting the benefit instead of these wealthy individuals … Today’s action ends that injustice and requires these discounts go directly to people. This will save patients up to 30%.”
Health Insurers Respond
With this rule, it was the health insurers who balked. “While pharma manufacturers would have you believe rebates are a problem and have pushed the administration’s ‘rebate rule,’ time and time again, economists and analysts have found that the rule takes us in the wrong direction by increasing costs and premiums,” Matt Eyles, president and CEO of America’s Health Insurance Plans (AHIP), said in a statement. “Americans want more affordable health care and prescription drugs. But as the administration’s own actuaries found, the rebate rule will increase Medicare premiums for all seniors by 25%, give drug makers another $100 billion bailout, and have taxpayers foot the bill for higher costs.”
“It is inconceivable that the administration would now do a complete about face and violate its own executive order by asserting that the rule would not increase federal spending, beneficiary premiums, or patients’ total out-of-pocket costs,” Eyles continued. “This rule threatens health care affordability just as Americans are continuing to battle the COVID-19 crisis and its impact on their health and financial stability … We will continue to review the details of the rebate rule and explore all options to reverse this misguided policy and stop its implementation.” AHIP’s membership includes several large insurers — such as Aetna, Humana, and Cigna — who either bought PBMs or have started their own PBMs in-house.
President Trump also announced a third regulation finalized by his administration — the administration is ending the Unapproved Drugs Initiative, which provided market exclusivity for drug companies that went through an approval process for drugs that had been grandfathered under the Food, Drug, and Cosmetic Act and were never formally approved under FDA’s modern approval system, as Health and Human Services Secretary Alex Azar explained on a phone call with reporters.
“This program has been used by drug companies to increase prices dramatically and linked to drug shortages for important drugs patients need,” Azar said. “In a related action, we’re also asking for input on how FDA should handle these types of drugs going forward, with the goal of ensuring a competitive market for safe and effective drugs that Americans can trust.”