As an attempt to lower drug costs, the Centers for Medicare & Medicaid Services (CMS) released an interim final rule that implements a new payment model, known as the Most Favored Nation (MFN) Model. Its approach is to pay no more for high-cost Medicare Part B drugs and biologicals than the lowest price that drug manufacturers receive in other similar countries.
If implemented, the new model will be mandatory and apply to providers nationwide, unless they fall under a narrow set of exceptions or are granted a financial hardship exemption. The rule will impact 50 Medicare Part B drugs that encompass a high percentage of Medicare Part B drug spending.
The Most Favored Nation (MFN) model will impact several fields, including neurology. Specific medications that will be affected include onabotulinumtoxinA, ocrelizumab, eculizumab, natalizumab, and rituximab.
Under the MFN model, purchasers of these drugs, such as physicians and hospitals, could face significant financial losses if pharmaceutical drug expenses continue to exceed the reduced reimbursements offered by this rule. Initially, this model was planned to be operated for seven years, from January 1, 2021, to December 31, 2027.
CMS published a final rule in the Federal Register on December 27, 2021, MFN Model interim final rule with comment period was planned to be effective from February 28, 2022. Due to the timing of the model’s release and the potential impact of litigation, it is possible that the model is never implemented as currently constructed.
Background of MFN Model
The Most Favored Nation (MFN) Model tests an innovative way to lower prescription drug costs by paying no more for high-cost Medicare Part B drugs and biologicals (called ‘drugs’) than the lowest price that drug manufacturers receive in other similar countries. The model also tests a single add-on payment per dose and waives beneficiary cost-sharing for this payment.
High drug prices are impacting the wallets of Medicare beneficiaries through increased drug coverage premiums and increased out-of-pocket costs. Overall, Medicare beneficiaries and the Medicare program are bearing unnecessary, potentially avoidable costs for Medicare Part B drugs that can be taken care of by the MFN model.
MFN Model Design
The MFN Model is a mandatory, nationwide model that tests whether more closely aligning payment for Medicare Part B drugs with international prices and removing incentives to use higher-cost drugs can control unsustainable growth in Medicare Part B spending without adversely affecting the quality of care for beneficiaries. The design of the MFN Model includes the following key elements:
Model drug payment:
- MFN price: Instead of paying solely based on manufacturers’ average sales price (ASP), Medicare will pay based on a blending formula that includes the lowest adjusted international price, (the ‘MFN Price’) for the drug.
- Phase-in over 4 years: The MFN Price will be phased in over the first 4 years of the 7-year model, phasing in 25 percent per year for years 1-4, and will be 100 percent of the MFN Price for years 4-7. For example, for the first year, the phase-in calculation will use 75 percent of the ASP and 25 percent of the MFN Price. In years 4-7, the MFN Price will be fully phased-in. However, CMS will accelerate the blending formula for a drug in years 1-4, if U.S. prices rise faster than inflation and the MFN Price.
- Will not exceed ASP: To lower what beneficiaries pay, the formula will not allow the model payment amount for a drug (before the per-dose add-on) to exceed the ASP.
Alternative to ASP add-on payments:
- The current add-on payment based on 6 percent of ASP for the individual drug will be replaced with a flat payment per dose that is uniform for all included drugs in the MFN Model. The per-dose add-on was calculated using 6.1224 percent of 2019 historic spending for the cohort of drugs included in the first year of the model. CMS bumped up the 6 percent add-on from 2019 to equal 6 percent post-sequestration prior to calculating the per-dose add-on and applying an inflationary factor for the model start and quarterly thereafter.
Mandatory participation:
- The MFN Model is a mandatory, nationwide model that requires participation from Medicare-participating providers and suppliers that receive separate Medicare Part B fee-for-service payment for the model’s included drugs, with certain exceptions.
Participants of the MFN Model
MFN participants include Medicare-participating physicians, non-physician practitioners, supplier groups (such as group practices), hospital outpatient departments (HOPDs) including 340B covered entities, ambulatory surgical centers (ASCs), and other providers and suppliers that receive separate Medicare Part B fee-for-service payment for the model’s included drugs, with certain exceptions.
Model participation is mandatory for the included providers and suppliers in all states and the U.S. territories. Certain types of hospitals and clinics will not participate in the model (such as cancer hospitals, children’s hospitals, critical access hospitals, rural health clinics, federally qualified health centers, and Indian Health Service facilities).
Included Drugs
The MFN Model focuses on a set of approximately 50 Medicare Part B drugs that encompass a high percentage of Medicare Part B drug spending.
CMS identified the included drugs for the first year based on annual Medicare Part B spending in 2019 after excluding certain claims (for example, claims for drugs used at home), and excluding certain types of drugs (such as certain vaccines, oral drugs, multiple source drugs, intravenous immune globulin products, and drugs for which there is an Emergency Use Authorization (EUA) or approval by the Food and Drug Administration (FDA) to treat patients with suspected or confirmed coronavirus disease 2019 (COVID-19)).
CMS will add drugs to the model annually to include drugs that rise to be among the top 50 drugs based on updated annual Medicare Part B spending, after applying certain exclusions.
Even though the MFN model may not be implemented immediately as planned, an understanding of its concept and basics will help you prepare better. MedicalBillersandCoders (MBC) is a leading outsourcing medical billing company providing complete revenue cycle management solutions.
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FAQs:
1. What is the Most Favored Nation (MFN) Model?
The MFN Model aims to lower Medicare Part B drug costs by ensuring payments do not exceed the lowest price paid by other countries for the same drugs.
2. Which drugs are affected by the MFN Model?
Approximately 50 high-cost Medicare Part B drugs are included, such as onabotulinumtoxinA, ocrelizumab, and rituximab.
3. Who must participate in the MFN Model?
Participation is mandatory for most Medicare-participating providers and suppliers, including physicians and hospital outpatient departments, with some exceptions.
4. How will the payment structure change under the MFN Model?
Payments will shift from the current average sales price (ASP) method to a blended formula that incorporates the lowest international prices.
5. When was the MFN Model originally scheduled to start?
The MFN Model was set to begin on February 28, 2022, but its implementation may be delayed due to ongoing litigation and regulatory considerations.
