SummaryNew Avalere analysis finds that the the Most Favored Nation (MFN) Model would have a significant negative impact on Medicare providers that furnish Part B drugs—especially in oncology and rheumatology—and those in rural areas.
The MFN model released in the last months of the Trump administration was set to take effect on January 1, 2021. However, ongoing litigation from 4 separate legal challenges halted the model’s implementation until the Centers for Medicare and Medicaid Services (CMS) could complete the notice and comment process. The Center for Medicare and Medicaid Innovation (CMMI) is still accepting public comment on the model through January 26, 2021.
The rationale provided by the CMS for the expedited finalization of the MFN through an Interim Final Rule with Comment Period (IFC) was due to the need to urgently support beneficiary affordability amid the pandemic and the resulting economic downturn. Avalere estimates that in 2019, about 3 million unique beneficiaries in Medicare fee-for-service (FFS) took at least 1 of the 50 MFN drugs. But given the high prevalence of supplementary coverage for Part B FFS beneficiaries, Avalere found in a prior analysis that less than 1% of Medicare FFS beneficiaries would see an impact on their out-of-pocket costs.
Participating Provider Impact
Unlike the International Pricing Index ANPRM proposed in October 2018, which was designed to include 50% of Part B providers, the MFN Model was announced as a mandatory nationwide model targeting the vast majority of providers that treat Medicare FFS patients with Part B drugs from the MFN Model drug list. Based on the CMMI’s own estimates, about 21,900 provider entities would likely be impacted by the model according to 2019 billable charges.
The MFN IFC calls for a shift in the add-on methodology for participating providers from the current percentage-based payment to a flat add-on per administration. At the start of the model, this would translate to a $148.73 flat fee add-on for each included drug during the first quarter. The flat fee add-on payment for each MFN Model drug would be indexed to inflation via the Consumer Price Index for All Urban Consumers (CPI-U) after the first quarter of 2021.
The Office of the Chief Actuary (OACT) estimates published in the IFC recognize that the shift from percentage-based add-on payment to a flat fee would affect physicians and would vary by specialty. Avalere conducted an analysis to expand on OACT’s estimated impact for the per-dose add-on in Table 8 of the MFN IFC to quantify the model impact for the full 7-year duration of the demonstration. Avalere finds that participating outpatient hospitals and offices would experience a reduction of $2 billion (15%) in add-on payments from 2021–2027 relative to what would have occurred without the model. Analysis results are based on a January 1, 2021, start date for the MFN Model.
Avalere also found that the MFN Model would have a disproportionately negative impact on rural versus urban sites of care, with rural participating providers seeing a 20% reduction in add-on payments relative to urban participating providers, who would see a 14% reduction. The impact by specialty would vary by practice size and the mix of drugs administered. However, Avalere estimates that oncology and rheumatology providers would see the most significant declines in payment. Rheumatology providers may experience on average about 31% decline in their add-on payment for the full 7-year duration of the model, while 5 oncology specialties that together account for about 33% of Medicare Part B spending may see on average about a 47% reduction.
Neither Biden nor his presumptive nominee for Health & Human Services Secretary, Xavier Becerra, has publicly commented on the model or its impact on stakeholders, especially given competing healthcare priorities. As stakeholders continue to evaluate the merits of this model, it is important to consider its impact on Medicare Part B providers and their patients.
Avalere modeled the impact of the proposed MFN Model using Medicare Part B claims data from the 2019 Standard Analytic Files (SAFs; 5% carrier and 100% outpatient), the 2019 Average Sales Price (ASP) Pricing Files, Congressional Budget Office (CBO) projections, and key assumptions used within the MFN Model IFC.
To determine the number of beneficiaries who received an MFN drug from a participating provider and estimate the provider reimbursement impact, Avalere identified claims in the SAFs for the 50 MFN Model Drugs at an MFN participating provider. Avalere excluded drug claims based on the criteria outlined in the IFC:
- Medicare was a secondary payer
- The carrier does not accept assignment
- Durable medical equipment claims
- Services provided at home, homeless shelters, assisted living, group homes, temporary lodging, or custodial care
- Services provided by certain hospitals based on the criteria outlined in the IFC: cancer hospitals, children’s hospitals, Indian Health Service hospitals, hospitals participating in the Maryland Total Cost of Care Model or the Pennsylvania Rural Health Model, hospitals that are not “subsection (d) hospitals” and are exempted from prospective payment, critical access hospitals, and rural health clinics
Avalere defined rural and urban ZIP codes based on business and population concentration. Avalere excluded 340B providers from the MFN Model in 2021 as directed by the IFC. Specialties were identified within the outpatient hospital SAFs using the specialty code of the attending physician associated with each claim and within the carrier SAFs using the provider specialty code associated with each claim.
To account for growth over time, Avalere inflated drug volumes based on enrollment projections in the 2020 Medicare Trustees Report and ASPs based on changes in Part B drug spending from 2019 to 2020. When modeling current reimbursement policy, Avalere assumed that the standard Part B add-on will continue to be 6%. Under the MFN Model, Avalere inflated the MFN flat add-on payment using the CBO’s quarterly projections for CPI-U. Avalere also used key modeling assumptions published in the IFC, including how the MFN flat add-on amount would be applied per drug administration.
Funding for this research was provided by the Pharmaceutical Research Manufacturers of America. Avalere maintained full editorial control.
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