Medicare Part B Background
Medicare is the largest single payer in the US, providing health care coverage for those age 65 years and older --regardless of income or medical history-- and those under the age of 65, with permanent disabilities or end-stage renal disease.
Medicare Part B covers a range of outpatient services, including physicians’ services, laboratory services, durable medical equipment (“DME”) and other medical services. It also provides coverage of certain items and supplies, such as outpatient drug products that are administered in the physician’s office or other outpatient setting. These drugs are reimbursed under the “buy and bill” model, through which providers first purchase drugs and then submit claims for reimbursement after the drugs have been administered to a beneficiary. Reimbursement for Part B drugs administered in the physician office setting is statutorily set at 106% of Average Sales Price (ASP), referred to as “ASP+6”. Centers of Medicare and Medicaid Services (CMS) updates reimbursement rates quarterly based on manufacturer’s quarterly ASP reporting; however, the rates are calculated using the reported ASP from two quarters ago. Beneficiaries are generally responsible for 20% of the cost of drug products under Part B.
Specific Part B drugs, including newly launched drugs, certain preventative vaccines, compounded drugs, and certain radiopharmaceuticals, are reimbursed under alternative formulas, rather than at ASP+6.
Part B benefits are managed by Medicare Administrative Contractors (MACs), which determine coverage on a case-by-case basis or based on Local Coverage Determinations (LCDs) or pursuant to National Coverage Determinations (NCDs). In order to obtain reimbursement for Medicare Part B drugs, providers must submit claims to MACs using Healthcare Common Procedure Coding Systems (“HCPCS”) codes.
ASP+6 is intended to account for variability in provider acquisition costs and to compensate providers for the additional costs associated with the complexity of Part B drugs, many of which are used to treat serious illnesses such as cancer and multiple sclerosis. However, the method has been criticized to perversely incentivize providers to provide more expensive drugs since the higher the drug price the higher the add-on amount (e.g., 6%).
Most-Favored Nation Model
On November 20, 2020, the CMS issued an interim final rule (IFR) to test Part B reimbursement based on International Reference Pricing (IRP) coined “Most Favored Nation” demonstration model (MFN Model). The MFN Model is scheduled to start on January 1, 2021 and will last for seven years. However, it is worthwhile noting by implementing the MFN Model through an interim final rule, CMS circumvents the normal process of notice-and-comment, which requires a good cause. Stakeholders may dispute if such good cause exists. It also remains to be seen if the incoming Biden administration will continue the model.
Model Participants
MFN Model participation is mandatory. MFN participants consist of nearly all Medicare participating providers and suppliers that submit claims for a separately payable drug that is an MFN Model drug for a Part B enrolled Medicare beneficiary (who is not covered under Medicare Advantage or a group health plan).
Drugs Covered
Initially, the Model will focus on approximately 50 Medicare Part B drugs and biologics with the highest spending during the preceding year, with additional drugs potentially added in subsequent years without removing a commensurate number of drugs. Once included on the MFN list, drugs will not be removed from the MFN list solely because they are no longer in the “top 50” higher cost drugs.
Certain categories of drugs are, however, categorically excluded from the MFN Model’s drug list:
• Vaccines,
• Radiopharmaceuticals,
• Oral anti-cancer, anti-emetic, and immunosuppressive drugs,
• Compounded drugs,
• Intravenous immune globulin products,
• Drugs billed under HCPCS codes to which any generic drugs are assigned, and
• The Model also does not apply to claims for drugs furnished in the inpatient hospital setting, administered by the DME MACs, or paid under the End-Stage Renal Disease Prospective Payment System.
Payment Methodology
Reimbursement under the MFN Model, or the “MFN Drug Payment Amount,” is calculated by CMS quarterly, based on the lesser of:
• the average sales price (ASP) reported to CMS for reimbursement outside the Model under Part B for a given quarter, or
• the “MFN Price,” which is the lowest “GDP-adjusted country-level price” from countries in the OECD other than the United States that have a GDP at least 60% of the U.S. GDP per capita for a given quarter.
CMS will phase in the MFN Drug Payment Amount by first blending the MFN Price with the ASP to give participants time to adjust to the Model, with the full MFN Price applicable by year 4. For example, in 2021, an included drug will be reimbursed at 75% of the ASP and 25% of the MFN rate. Year 2 will be 50% of the ASP and 50% of the MFN rate. Year 3 will be 25% of the SAP and 75% of the MFN rate. And year 4 will be 100% MFN rate.
CMS intends to use data from two quarters prior to the quarter in which the reimbursement will be provided to mirror the two-quarter lag in ASP reporting, since ASP could play a role in reimbursement.
Add-On Payment
CMS will pay Model participants a single flat add-on payment to cover MFN drug administrative costs. And that amount is based on 2019 historical ASP data adjusted for inflation. For the first quarter of 2021, the add-on payment will be $148.73. Beneficiary cost sharing requirements will apply only to payment for the drug itself, excluding the add-on amount.
Price Reporting
CMS has provided guidance in the preamble to the IFR, on how manufacturers should treat the MFN Drug Payment Amount for purposes of price reporting programs, including Best Price, Average Manufacturer Price (AMP), Medicaid Rebate and 340B ceiling price and ASP. In general, it is expected MFN pricing will push manufacturers to reduce prices for MFN participants, consequently, will lower Best Price, AMP, ASP and potentially impact Medicaid Rebate and 340B ceiling pricing.
Critiques on International Reference Pricing
Critics of IRP argue the MFN Model is misguided as importing prices from other countries would impose on US citizens the values of patients and health systems in the referenced countries. This is especially true under the MFN model, which targets only one country’s price for any particular drug as the reference (i.e., the OECD country with the lowest price for that drug -- as long as the country has a GDP per capita of at least 60 percent of the US level). Additionally, it should also be expected that the referenced countries will resist this price creep in their own country by hiding their negotiated prices, while letting list prices equate to those of US prices.
As such, serious attempt to address drug prices in the US need to address the central limitations of US statutes – the barriers to systematic use of value assessment (e.g., cost-effectiveness analysis is effectively prohibited for major federal payers and evaluators under the Affordable Care Act) and negotiation in drug pricing (e.g., Medicare are sometimes expressly prohibited from negotiating prices).
References:
1. ISPRO Global Health Technology Assessment Road Map – United States Pharmaceuticals, Feb 2015, https://tools.ispor.org/htaroadmaps/USPh.asp, Accessed 12/8/20
2. Pricing and Reimbursement, USA 2020, Covington, https://www.globallegalinsights.com/practice-areas/pricing-and-reimbursement-laws-and-regulations/usa, Accessed 12/8/20
3. Medicare links Part B payment rates to international prices: Most Favored Nation Model, Hogan Lovells, 12/23/20, https://www.lexology.com/library/detail.aspx?g=c9885928-9b38-4960-a3c1-6872af199cc2, Accessed 12/8/20
4. International Reference Pricing: A Lazy, Misguided, Bi-Partisan Plan To Lower US Drug Prices, Health Affairs, 12/2/20, https://www.healthaffairs.org/do/10.1377/hblog20201130.594055/full/, Accessed 12/8/20