SummaryTune into another episode of Start Your Day with Avalere. In this segment, experts from Avalere’s Policy practice discuss the Most Favored Nation (MFN) drug pricing model, how it works, and the implications for stakeholders.
Chris: Hello and welcome to another episode of Avalere Health Essential Voice in our Start Your Day with Avalere podcast series. My name is Chris Sloan, and I am an Associate Principal on the Policy team here at Avalere. I am joined today by one of my favorite colleagues, Massey Worley, who is also an Associate Principal on the Policy team.
Today we’re going to cover the Most Favored Nation (MFN) Model Interim Final Rule with Comment Period, or the drug pricing reform proposed by the Trump administration, that’s due to start January 1, 2021. We’ll discuss how it will work in the real world and some of the considerations for life sciences companies as they work around this new demonstration from the Center for Medicare & Medicaid Innovation (CMMI), such as how they project the long-term impacts on their business and what it means for their pricing, how they go about modeling it, and what it means for international prices.
This will be a tactical discussion today, but I think it’s a good chance to show how Avalere is thinking about the MFN model.
Massey, to kick it off, how does this work? How did the Trump administration design a model that ties reimbursement and Medicare Part B to international prices?
Massey: That’s a great question, Chris, and you’ve already alluded to several key components of this. This is functionally a reference pricing model whereby the top 50 drugs in Medicare Part B will be indexed to the lowest prices available in the reference Organisation for Economic Cooperation and Development (OECD) countries. There are 36 ex-US OECD countries. However, the model only includes the 22 countries that have at least 60% US per capita GDP, so these are functionally countries that are equivalent in income to the United States.
Then, the model looks at those 22 countries’ pricing for the top 50 Medicare Part B drugs but excludes those countries that have low sales volumes. So, if a country has less than $1,000, or 1,000 units in a quarter, they’re excluded. Otherwise, their prices are adjusted to be normalized to US volume and per capita GDP. For example, if a country has 80% of per capita GDP relative to the US, their drug prices are moved up 20%. Then the model chooses the lowest GDP-adjusted price.
As you mentioned, this model is slated to start on January 1, 2021, which is just 28 days from now. This is leaving many folks scrambling to understand the intricacies of how this will play out as they look to gather data on ex-US pricing.
The other piece of this is that this extends for 7 years. So, we start in January 2021 and run through 2027. The MFN payment, which will be how much Part B providers can be compensated for administering these top 50 drugs, is going to be a blend of average sales price (ASP) and the MFN price, that lowest price among the 22 ex-US OECD countries.
In the first year of the model, the MFN payment amount will be equal to 75% ASP and 25% MFN. In year 2, it will be equal weighted 50% ASP and 50% MFN. In year 3, we will see ASP dropped to 25% of the MFN payment amount, and the MFN price will represent 75%. For years 4 through 7, the entire payment amount under this MFN model will be the MFN price.
The last piece that I’d like to highlight is a transition in the way that the add-on payments associated with Part B drugs works. The current model has ASP plus 6% as the add-on. We are going to be shifting to a flat add-on payment of $148.73 per dose. This is a change, and it will affect each drug differently based on the dosage and frequency of administration. The add-on payment, like the MFN price and payment amount, will be revisited quarterly.
So, for example, if one country’s price shifts from quarter to quarter, you will see a change in the reference country for that product and a change in its price. Similarly, the add-on payment will be adjusted quarterly and will be referenced to CPI-U (Consumer Price Index for All Urban Consumers), which is a standard measure of inflation.
Chris: So, if I am going to summarize this in layman’s terms, it’s a really big cut in Medicare reimbursement for Part B drugs. Once this model is fully phased in, it’s going to be a nearly 60% reduction in Medicare reimbursement. We’re talking about a pretty big change in how Medicare reimburses providers for administering drugs. And the assumption is that the reduction ends up also being a substantial reduction in what manufacturers get paid for these products in the Medicare Part B program.
So, Massey, this model really rests on international pricing data for these OECD countries from which we’re picking the MFN price. How does the administration propose to get that data? What data sets are they relying on to say the lowest price is in Sweden or Australia, or 1 of the 22 countries?
Massey: Great question, and I appreciate the context because this is a significant change and fundamentally a significant cut in reimbursement for these Part B products.
That all rests on the ex-US prices of these products. We are aware from many years of conversations that many countries outside of the US pay less for these products. The interim final rule with comment period proposes a hierarchy of data and outlines how they will prioritize which data they use as inputs for the model.
The model places data sets that show completeness and recency at the top of the hierarchy. In completeness, they are looking for sales and volume data, sales being the price and quantity sold, and volume being the packaging. It is important to remember that if one country has 6 milligram packaging, and another country has 2 milligram packaging, you need to first standardize those so you’re comparing apples to apples.
The hierarchy also prefers recent data, that is, the most relevant quarter. I mentioned that the model is updated quarterly for MFN pricing as well as the flat add-on payment amount. So, as we look back, the interim final rule is going to quarterly adjust and pull data.
Now, what they have specified in the interim final rule with comment period thus far as an illustrative example of MFN pricing and payment amounts is based on IQVIA’s Midas data set. That is a good signal of the type of data that the administration will be looking at as they implement this come January 1, 2021.
Chris: We are going to find out very soon exactly what the prices will be for January 1, 2021. What are you recommending that manufacturers do to project the impact, both for products currently in the MFN model, the top 50 by spend in 2019 in Part B, and for products that may get picked up in future years? How are you helping clients project these impacts over the 7 years of the demo?
Massey: We are helping our clients think through the impact of this because it is a drastic change. First and foremost, there are the top 50 products that are included in the model, as already outlined. It is important to think through how their ex-US pricing will directly impact the MFN price and subsequent payment amount. The interim final rule projects that in the first year of the model, there could be as much as a 16% decrease in the payment amount. In the out years, years 4-7, a 65% decrease. This is a significant impact on those companies that have products in the top 50.
The other important thing to note is that this list is dynamic and growing. Every year, CMMI will reevaluate which products are in the top 50 Medicare Part B spending, and any new drugs that were not initially included in the model but subsequently become top 50 drugs will be rolled into the model and subject to MFN pricing.
We are also looking at how this has implications for biosimilars, as well as countries’ ability to modify their ex-US prices or offerings. For example, in the interim final rule, the Office of the Actuary discusses potential behaviors by manufacturing companies to look at their ex-US pricing, perhaps raising prices outside of the country, or changing how much product they offer in those countries. The idea there is that there is capacity, and potential levers to pull, to manage the losses that we will see from MFN.
The last piece of this is how businesses will be thinking about how to bring products to market. Are they going to bring them sooner, or later? Are they going to think about pricing in terms of how it interacts with Part B? It also has a direct impact on how they think about bringing those products to market in ex-US countries.
Chris: Thanks for that, Massey. And with that, we will wrap up the podcast. Thanks for joining me today. This was fun. Thank you all for listening and for tuning into Avalere Health Essential Voice. If you’d like to learn more about this or any other fun healthcare topics, please stay tuned for more episodes and visit our website at Avalere.com. Thanks very much.
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