Impact analysis: Most Favored Nation model interim final rule

DATE: 01/27/2021

In November 2020, CMS announced a nationwide model that aims to reduce spending on Medicare Part B drug payments without impacting the quality of care. Called the Most Favored Nation model, the program endeavors to lower prescription drug costs by “paying no more for 50 high-cost Medicare Part B drugs and biologicals than the lowest price that drug manufacturers receive in other similar countries.”

MFN was slated to begin Jan. 1, 2021, but has been delayed due to several court orders. MFN participation is mandatory for all Medicare providers and suppliers that receive separate Medicare Part B fee-for-service payment for included drugs, with exceptions.

DataGen’s analysis of the MFN interim final rule for hospitals in the United States reveals:

  • CMS will no longer pay average sales price + 6% for 50 high-cost separately payable Medicare Part B drugs and biologicals. Instead, CMS will pay no more than the lowest price that drug manufacturers are receiving in other similar countries for these 50 drugs plus a flat add-on fee of $148.73. That initial fee will be updated by an inflation factor throughout the program years.
  • The reduction will be phased in over four years. The phase-in is designed as follows: 25% of the MFN rate and 75% of the current ASP rate for the first year, 50% of the MFN rate and 50% of the current ASP rate for the second year, 75% of the MFN rate and 25% of the current ASP rate for the third year and 100% of the MFN rate for years four through seven.
  • For calculation purposes, our analysis assumes the flat add-on fee remains at $148.73 for all seven years of the program. This analysis also assumes that the list of 50 drugs remains the same over all seven years, as well as the ASP and MFN for those drugs. If a drug did not have an associated MFN price in the MFN Model IFC, the ASP price was used as the MFN price. Also, the payment amount for any MFN drug is capped at the ASP amount and the MFN model payment is capped at what Medicare would otherwise reimburse providers under the current methodology. This analysis does not package drugs and assumes all drugs are separately payable. DataGen made an adjustment for sequestration and does not include the pause on sequestration adjustments for the first quarter of calendar year 2021. The analysis also does not reflect changes due to volume or patient mix.

As the analysis shows, the seven-year total change represents a significant 73% reduction in payments for these 50 Medicare Part B drugs to hospitals throughout the country. Our full state-by-state analysis is available here. To learn more about our analyses of other alternative payment programs, please contact us.