Magazine Article | October 12, 2020

Implementation Of MFN, Importation, And Other Mischief In 2020

Source: Life Science Leader

By John McManus, president and founder, The McManus Group

As the election nears and a potential change in power of both the White House and Congress approaches, it is important to understand that significant healthcare policy can still be accomplished this year.


Most significant to the pharmaceutical industry is potential rulemaking implementing President Trump’s executive order requiring Medicare reimbursement of Part B drugs based on the lowest price in a “most-favored-nation” (MFN). Though the order called for “immediate steps” to implement a rulemaking plan for “certain Part B drugs,” as this column goes to print, nearly three weeks later, nothing has been issued.

That did not stop President Trump from taking credit for already implementing the policy in the first, chaotic, presidential debate: “Drug prices will be coming down 80 or 90 percent. … There is nothing symbolic, I’m cutting drug prices. I’m going with favored nations,” he said.

Is it possible that the administration does not follow up with actual rulemaking implementing the MFN executive order? Yes. Nothing can be implemented before the election anyhow, and why risk taking on the cancer community and other powerful constituencies once they see the details of how a policy would be effectuated? That may play into Vice President Biden’s hand, as he fancies himself father of the 2016 “moonshot” proposal to cure cancer. Under this scenario the president can keep taking credit for policies he has not enacted and hope that the public does not call him out on it.

Scenario 2, and most concerning to the industry, would be an “interim final rule” that would provide implementation without the more time-consuming notice and comment period required of the typical regulatory process. The statute establishing the Center for Medicare and Medicaid Innovation (CMMI) explicitly allows the agency to skip the notice and comment period and issue a final rule. The timing of such implementation is unclear but, in any case, it is unlikely to occur before the end of the year due to the complexity of changes required. PhRMA would certainly litigate as soon as the rule is issued.

Scenario 3, and more likely, would be a traditional rulemaking process under which CMMI would issue a proposed rule and provide affected stakeholders 60 days to comment. Then, 60 days after that comment period closes, the agency would issue a final rule, taking those comments into account. This scenario would provide the opportunity and time for the industry and allied groups to mount a campaign to derail or materially change the proposal. That is exactly what occurred when the Obama administration tried to change Part B drug reimbursement and eventually withdrew its proposed rule in 2016 under withering attack.

Key questions any rulemaking must resolve:

Would the current buy and bill distribution system, where providers purchase and inventory drugs and are then reimbursed by Medicare, be maintained? Or would a new vendor-based model, likely administered by PBMs and other middlemen, be established? A vendor-based model would require 18 to 24 months to establish due to the significant logistical infrastructure necessary to administer the program. That was the experience of the Competitive Acquisition Program that failed to attract more than one vendor or many physicians 15 years ago.

How would Medicare implement the price controls under a buy and bill model that pay healthcare providers, not manufacturers, for physician-administered drugs? It could cap Medicare reimbursement at the MFN prices and put providers at risk to leverage those payment cuts to demand the lower prices of drugs. That would be sure to generate a backlash from physicians and hospitals and may not be workable. More likely, CMMI could condition Medicare coverage of a drug only if the manufacturer enters into an agreement to sell to Medicare providers at the MFN discounted price or provide a rebate to Medicare equal to the difference of  average sales price (ASP) and the MFN price.

If rulemaking moves forward, the Congressional Budget Office (CBO) baseline — the underlying assumptions of the costs of goods and services Medicare pays for — would change. CBO changes the baseline by 50 percent for a proposed rule and 100 percent for a final rule, even if the policy is not yet in effect. A Democratic sweep in the election is likely to result in a Biden administration withdrawing an MFN rule and, rather, empowering Congress to enact price controls on the industry so those substantial savings could be used to finance other health priorities such as shoring up ACA plans with larger subsidies.


The Trump administration did finalize rules for the importation of drugs. States could establish their own importation programs, which would be certified by HHS under current law as “posing no additional risk to the public’s health and safety,” and “would result in significant reduction of costs to the American consumer.” Eligible prescription drugs would have to be relabeled with the required U.S. labeling and undergo testing for authenticity and degradation and to ensure that the drugs meet established specifications and standards.

Canada, of course, has expressed dismay over the proposal and concern that its own pharmaceutical supply meant to serve a country one-tenth the size of its southern neighbor would be threatened. It’s unclear when the FDA will clear state proposals to execute the program, but Florida, Michigan, and Colorado already have submitted applications.


Congress recently extended funding for the government for 71 days, and it is now set to expire on
Dec. 11.  This sets up action on an omnibus spending bill as well as a modest Medicare package to fund expiring Medicare programs in a lame duck period — the period after elections but before the new president and Congress are sworn in.

Pharmaceutical offset provisions are already in play. On Sept. 29, the House of Representatives passed a noncontroversial bill funding maternal health programs with a provision slipped in that repeals the 100 percent cap on Medicaid rebates for drugs provided to that program.  That claws more than $14 billion from the industry by literally requiring companies to pay the program to use their products.

How is that possible? The complicated Medicaid rebate formula requires companies to pay a base rebate equal to the greater of 23 percent of the average manufacturer’s price or the best price it provides the commercial market plus an additional rebate for price increases that exceed inflation (CPI [consumer price index]) since the date of launch. This “CPI penalty” can add up quickly over the years, particularly for older products as a few percentage points spread between inflation and price increases compounds over time. The ACA capped the Medicaid rebate at 100 percent, reasoning that getting a drug for free was good enough for the program.

By removing that cap, the bill would require a company to literally pay the program the value of the rebate above 100 percent for the pleasure of utilizing its product. Some companies are confronting a penalty of 40, 50, and even 70 percent in some cases, in addition to providing the drug for free. This reform has bipartisan support, and although the Senate has a different approach on maternal health, we are bound to see this proposal come back in lame duck. What company can continue marketing a product that they have to literally pay a major customer to take? This is not a question Congress appears to be interested in.

The industry is also vulnerable on noncontroversial, though still painful, provisions, such as  requiring rebates for portions of unused biologics drugs for patients who may not require the full vial to be injected and a slew of other proposals that have been reported out of committee but have not gotten to the president’s desk.

Strange times, and the fun never stops!

John McManus is president and founder of The McManus Group, a consulting firm specializing in strategic policy and political counsel and advocacy for healthcare clients with issues before Congress and the administration. Prior to founding his firm, McManus served Chairman Bill Thomas as the staff director of the Ways and Means Health Subcommittee, where he led the policy development, negotiations, and drafting of the Medicare Prescription Drug, Improvement and Modernization Act of 2003. Before working for Chairman Thomas, McManus worked for Eli Lilly & Company as a senior associate and for the Maryland House of Delegates as a research analyst. He earned his Master of Public Policy from Duke University and Bachelor of Arts from Washington and Lee University.