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Avalere Statement on Trump Administration Drug Pricing Reforms

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Earlier today, the Trump Administration released long-anticipated drug pricing reforms, including rules related to a Most Favored Nation (MFN) approach for drugs administered by providers in Medicare and rebate reform for the Medicare Part D program. Both rules represent fundamental shifts in our current system and have significant implications for manufacturers, health plans, pharmacies, providers, and patients.

MFN Interim Final Rule (IFR): The interim final rule establishes a MFN Model for Part B drugs beginning January 1, 2021. The MFN Model is a 7-year, mandatory national demonstration under which Medicare fee-for-service (FFS) reimbursement for Part B drugs is tied to the lowest price in other OECD countries, phased in over the first 4 years.

  • Model Participants: National mandatory demonstration for Medicare-participating providers (e.g., physicians, non-physician practitioners, supplier groups, hospital outpatient departments (HOPDs), ambulatory surgical centers (ASCs) that receive separate Medicare Part B reimbursement for model-included drugs, with some exceptions. Through the model, provider reimbursement for included drugs would shift from current 6% of average sales price (ASP) add-on, to a flat-fee add-on.
  • Drugs Included: Top 50 Part B drugs (including biosimilars) by 2019 spend (to be updated annually). Excluding vaccines, radiopharmaceuticals, oral drugs, compounded drugs, intravenous immune globulin products, and drugs that share a HCPCS code with a generic
  • Countries Included: OECD countries with at least 60% of the US GDP per capita

“While the rule will undoubtedly be subject to legal challenge, the January 1 implementation deadline for the most favored nation approach creates an immediate imperative for manufacturers to evaluate their domestic and international pricing strategies,” said Lance Grady, practice director at Avalere. “Understanding the price set by the international benchmark formula is a critical first step toward identifying potential product-specific impacts.”

“The pandemic has already caused challenges for patients and providers—challenges which are likely to worsen over the coming months as COVID-19 cases grow,” said Milena Sullivan, principal at Avalere. “The changes to drug reimbursement policy will lead to more disruption, potentially creating winners and losers among doctors in an already volatile environment, further disrupting patient access to specialty care.”

“From a practical perspective, the rule doesn’t give practices much time to figure out how they will manage inventory purchased under their normal contracts,” said Omar Hafez, managing director at Avalere. “In particular, providers will need to distinguish between product acquired for commercial patients versus inventory that is for Medicare patients only and purchased under an MFN price.”

Anti-Kickback Statute (AKS) Rebate Reform:The rule largely finalizes provisions in the January 2019 proposed rule to eliminate the current AKS safe harbor protections for manufacturer rebates to plan sponsors and pharmacy benefit managers (PBMs) in Part D (but not Medicaid managed care) beginning on January 1, 2022 and creates 2 new safe harbors:

  • Point-of-Sale Reductions in Price for Prescription Pharmaceutical Products: Protects point-of-sale price reductions offered by manufacturers on certain prescription pharmaceutical products that are payable under Medicare Part D if the price reduction is set in advance and passed on to beneficiaries at the point of sale
  • PBM Service Fees: Protects fixed fees that manufacturers pay to PBMs for services rendered to manufacturers for the “benefit of the manufacturer” and are related to the PBMs’ arrangements to provide pharmacy benefit management services to health plans

Additionally, the rule clarifies that point-of-sale chargebacks from pharmaceutical manufacturers to dispensing pharmacies must be at least equal to the discounted price of the drug and that any entity (including PBMs and wholesalers) may administer the chargebacks.

“The rule fundamentally reshapes how payers and providers will negotiate, while requiring significant operational changes to an already complex drug supply chain,” said Miryam Frieder, practice director at Avalere. “Looking ahead to 2021, the rule will also influence the future debate about changes to the Part D program, such as an out-of-pocket cap and benefit redesign.”

“Preparation has already begun for the 2022 Medicare plan year,” said Matt Kazan, principal at Avalere. “Even if today’s rebate rule is subject to legal challenge or congressional reform, stakeholders will need to move quickly to meet implementation timelines.”

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