Magazine Article | December 9, 2020

Most Favored Nation Regulation Could Upend The Rx Market

Source: Life Science Leader

By John McManus, president and founder, The McManus Group

Buried on page 184 of President Trump’s interim final rule (IFR) implementing his “Most Favored Nation” (MFN) drug proposal is Table 11, which projects 19% lower utilization of Medicare Part B medications due to “no access.”  It is an extraordinary admission by the administration’s own Office of the Actuary that there will be a nearly one-fifth decline in patient access to medications they rely on for serious diseases such as cancer, Crohn’s disease, and macular degeneration due to the new MFN price control regime.

The MFN proposal would slash reimbursement for the top 50 spend physician-administered (Part B) drugs, which comprises 88% of spending on all such drugs, to the lowest price in 22 OECD (Organisation for Economic Co-operation and Development) countries. It is slated to go into effect nationwide January 1, 2021, less than six weeks after the IFR was issued and 20 days before the comment period even ends.

Those prices will be identified quarterly and determined by a potentially rotating series of countries around the globe including New Zealand, South Korea, Luxembourg, and Canada. The MFN prices would be phased in with the current Medicare reimbursement methodology (average sales price plus 6%) over four years.

When fully phased in, price cuts of selected products average 68% and range from 17% for Darzalex to 99% for Alimta. It’s no wonder the Trump administration exempted COVID-related products from the model; it recognizes that this pricing scheme threatens investments for unmet medical needs.


The price control is applicable to the providers — hospitals, physician practices, and infusion centers —that provide the drugs to patients, not to pharmaceutical manufacturers. They will confront a two-quarter lag from when the international price is identified and when they must scramble to acquire the product here in the U.S. for that new reimbursement rate. In addition, the 6% add-on payment to providers would be abandoned for a new flat $148.78 payment per dose, creating windfalls for some physician practices but crippling cuts for others. On the extremes, cardiology will receive a 1,284% increase while emergency medicine is dealt a 62% cut from the new flat add-on payment scheme.

Many providers are expected to be upside down, as the costs of acquiring the biologicals they seek to administer will greatly exceed Medicare reimbursement. Thus, patient access will likely suffer because losing money on providing care to vulnerable patients is not a viable long-term business strategy. Physician practices and infusion centers are particularly vulnerable because they cannot make up revenue on other lines of business, unlike hospitals that provide many other services (e.g., diagnostics and surgery).

Ted Okon, executive director of the Community Oncology Alliance, denounced the proposal as “brazen and unhinged. It is one of the most outrageous health policy proposals I have ever seen in nearly 20 years in Washington. It not only threatens community oncology providers as they struggle to treat most Americans with cancer during an unchecked pandemic, but it also brazenly bypasses existing law as established by the legislative branch of the government. The Trump administration is essentially throwing these providers under the bus. Forcing a radical change in the entire healthcare system during a global pandemic is not rational or safe. It puts politics over people.”

The MFN proposal is political?


The Trump administration had been mulling a proposal to address the pricing disparity between the U.S. and other countries for over two years as leverage to bring the pharmaceutical industry to the table as Rx drug-pricing legislation worked its way through Congress.  An “Advance Notice of Proposed Rulemaking” (ANPRM) — more of a brainstorm than formal proposal — was issued in October 2018 suggesting a Part B demonstration project that would subject half of the country to an international pricing index.

The industry engaged in the legislative process, but pharmaceutical pricing legislation stalled as the COVID crisis shifted attention of most policy makers and the industry to defeating the pandemic with vaccines and therapies for a disease that had spread across the globe, killed hundreds of thousands, and threatened economic prosperity with interminable lockdowns.

Not all policy makers.

President Trump remained fixated on the pricing disparity between the U.S. and other countries. He saw it as just one more manifestation of foreign freeloading at Americans’ expense and demanded action. When this summer’s negotiations between the administration and the pharmaceutical industry collapsed because the industry balked at financing “Trump Rx discount cards” to be issued this fall as too political, Trump issued his MFN executive order calling for rulemaking implementing the change.

He flogged the industry in debates and stump speeches and took credit for implementing the MFN policy, though no action had been taken before the election when it could have been most politically impactful. Many thought it would not come out at all, since it was seen as too complex and overreaching.

Then, on the Sunday after the presidential election was called for Vice President Biden, Pfizer announced that its vaccine was 95 percent effective for preventing infection of the COVID virus. Many Republicans and President Trump felt that the data were withheld to sway the tight election toward Biden. MFN is a strike back at the industry.


How can the Trump administration unilaterally implement a policy that bypassed Congress and a formal rulemaking process necessary for stakeholders to engage? The answer is the power bestowed to the Center for Medicare and Medicaid Innovation (CMMI) by the Affordable Care Act to test promising care models. CMMI is provided wide latitude to disregard, override, and abandon long-standing statutory and regulatory protections. Some may assert that represents an unconstitutional delegation from the legislative branch to the executive branch, but case law is scant in upholding that argument.

The pharmaceutical industry is preparing litigation that the administration overstepped even the expanded authority afforded by the CMMI. Specifically, the Trump administration refused to undertake a formal notice-and-comment rulemaking process where stakeholders could respond to a proposed rule. The Department of Justice had reportedly counseled against issuing an interim final rule rather than a proposed rule, since the administration had spent more than two years dawdling after issuing its ANPRM and had no “good cause” to skip the rulemaking process entirely. Moreover, the ANPRM contemplated a materially different proposal, including establishing a new distribution chain dependent on new vendors that would replace “buy and bill” and tying U.S. prices to an index of foreign country prices, not the lowest one.

Assuming the litigation succeeds in blocking the rule, what then? It will be up to the Biden administration to propose a new rule, hold it in abeyance to leverage negotiations with the pharmaceutical industry on more comprehensive reform, or withdraw it entirely. The last option is unlikely as the Democratic progressive base has been demanding pharmaceutical price cuts for years and the House of Representatives passed two bills in the last year capping Medicare and commercial prices at an international price index. Moreover, it is not hard to imagine an out-of-office President Trump hectoring President Biden over perceived giveaways to the pharmaceutical industry as he plots his rematch in 2024.

Alternatively, Congress could “disapprove” the rule under the Congressional Review Act. But that would carry a score of $85 billion in costs, which must be offset with cuts to other programs. And are there majorities in both chambers to move forward with such legislation? Likely not.

The pharmaceutical industry is in a box with no clear way out.

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.