The Most Favored Nation Policy on Part B Drug Costs
The Most Favored Nation Policy (MFN) is an economic term used in international trade. It means that the country enjoys the best trade terms possible, provided by its trading partner. That means that it has the lowest tariffs (taxes on imports) possible and fewest trade barriers (in trading outside the country) with the highest import quotas possible (amount of a good that can be imported from one country to another.)
MFN partners are supposed to be treated equally, providing one another with the same benefits. There are 164 members (countries) in the World Trade Organization meaning that they are all afforded the MFN principle. It only works if everyone involved is reciprocally offering the same benefits to one another.
The overall goal is to increase international trade because trade is good for the global economy, international relations and the people in participating countries. So why is the Most Favored Nation Policy a good thing aside from the things we just mentioned? Well it expands the possible number of trading partners, lowers barriers to trade as much as possible and gives products a competitive market in each country they are traded.
Okay so how does any of this relate to Medicare? Recently President Trump issued an order to extend the Most Favored Nation Policy to the 50 most expensive drugs in the Medicare Part B program. It was quickly stopped by a Maryland District Court for two weeks while they assess the legality of the order.
Some background on Medicare Part B drugs and why they remain so high in comparison to Part D drugs. Part D drugs and Medicaid drugs both have negotiation avenues for reducing the cost of drugs with the insurance provider to allow the customer to pay less for expensive medications.
However, when you hear about rising drug costs in many cases, they are talking about the Medicare Part B drugs due to the fact that Part B drugs tend to be the most expensive (many cancer drugs, infusions etc.) to the reimbursement models they follow. So, if you have a Medicare Part B drug, you are paying for the cost of the Medication, then Medicare turns around and reimburses the physician for prescribing that drug, and continues to reimburse the physician for “administering” that drug.
That means that the prescribing physician/practice/hospital (payer) will receive up to 106% of the drug cost, regardless of the cost of the drug being administered. As a result Medicare under CMS cannot negotiate lower drug prices with drug manufacturers. This is typically why we suggest individuals who have Part B drugs to look at Supplemental (Medigap) plans to cover nearly 100% of the total cost in many circumstances.
The order would attempt to lower the cost of drugs in the Medicare program by saying that the domestic consumption of the 5o most expensive drugs in the Medicare Part B program will cost no more than they do in other countries. Meaning, manufacturers in the United States will receive the same price for these drugs that companies world-wide receive for the drugs.
The prices of the drugs will be set by the global prices in other countries. If that drug is in shortage or there are no international sales of that drug, the FDA will revert back to things currently with 73% of Medicare Part B spending by consumers spent on drugs. (natlawreview.com) The new proposal would reduce that insanely high reimbursement “administration fee” to an overall 6% add on fee that will increase with inflation. The goal is to reduce the large kickback payments to payers and providers so that they are disincentivized to prescribe the high-cost medications.
So why was it stopped? In short: providers will make less money and there’s a fear that if they make less money, they’ll do less and limit access to life saving drugs.
Well there are several parties that are affected by this decision: participating Medicare Physicians, group practitioners, outpatient hospital departments, ambulatory surgical centers, and other providers and suppliers that currently receive Medicare Part B fee-for-service payments such as Home-health services. Members from each of these groups filed cases against the order. Keep in mind that cancer hospitals, children's hospitals, rural health centers, critical access health centers, community mental health centers, and several others are excluded from the rule.
Their complaint focuses on the following issues:
The Trump Administration superseded their jurisdiction with the Center for Medicare and Medicaid Innovation under the Affordable Care Act to conduct demonstration projects.
This means that Trump’s power to issue Executive Orders does not extend to experimental measures like this one.
The Most Favored Nation Policy was violated because the Order mandated its use.
This is a problem because the MFN policy is and must be voluntary. The United States cannot require other countries to follow this Order. It has to be self-selected by other countries.
The Order is unconstitutional because it violated the regulatory process of rewriting a Medicare statute and the reimbursement system for Medicare Part B physician-administered drugs.
This power solely lies with Congress, not with the Executive Branch. CMS has also admitted that the experimental policy is based on questionable estimates for cost reduction.
The Oder bypassed the requirement of “good cause” to prove that this measure would result in the intended consequences and was created with supporting evidence. There was also no public commentary period, another requirement, allowing parties to weigh in on its validity.
A requirement for any final rule like this to pass, is that there is an open public commentary period and final ruling by Congress, that weighs all the input and makes a decision. CMS was required to provide notice and comment before they enacted the Order, resulting in widespread structural change as to how things are done. This in itself is unconstitutional because the order bypasses a necessary body in making decisions.
This Order is the first time in history that a Federal price control measure was not voted on or passed by Congress. It would also be the first time that the United States would set price regulations based on prices set in foreign markets.
Now, we wait for the Courts to respond. While we wait, we can also think about the incoming administration and what they will do with the Order. Executive Orders are not law and the incoming president can repeal them. Biden and Trump do agree on one thing, that drug prices are rising. Biden has made it clear that he wants to reduce healthcare costs, increase access and maintain, if not expand the Affordable Care Act set in place by Obama. Now that being said, Biden is going to look at the international price indices and restructure US drug prices with international prices as a reference point. This is somewhat similar to Trump’s Order, but it would go through the process of getting approved by Congress and roll out a plan for long-term implementation so as to not shock the system and harm Medicare beneficiaries.
Doctor’s Choice Medicare Expert Ben: How do you see this changing Medicare?
This order seems to be another step the Trump administration is taking to reduce drug spending overall. Drug spending as an overarching issue is, frankly, something that has needed to be addressed for some time. Plenty of studies exist showing that the United States pays much more for prescription drugs than other countries. That said, I’m skeptical as to whether this MFN policy will actually amount to anything or even make it out of court. With the Biden Administration coming in less than 2 weeks from writing this, it seems unlikely to me. Add to that the fact that this measure was put into place by circumventing the natural process it would normally adhere to, it seems like it’s more for show than implementation, for better or worse. However, if 2020 taught us anything, it’s that anything is possible! If this measure is passed, how it translates and positively affects Medicare patients also remains to be seen.
In my opinion, a more effective way to reduce drug spending and costs would be to have the government negotiate prices directly with the manufacturers, essentially cutting out the middleman. This is how it’s done in Canada (in much less detail!) and why many drugs are drastically cheaper over the border. Pharmacy Benefit Managers currently exist as this middle man between manufacturers, insurers and pharmacies. Essentially they decide what drugs are covered on an insurance plans formulary (list of covered drugs) and at what cost. This is a very brief overview of a complex system so please take that into consideration. The current system functions by manufacturers paying rebates to PBM’s in order for that drug to be placed on an insurance plans formulary. This rebate (amounting to $Billions/year) is commonly seen as a major contributor to rising drug prices. This is because the rebate awarded by the manufacturer to the PBM gets passed on to the consumer through costs at the pharmacy. Again, this is a very brief description of a complex system, but addressing this would tackle the issue much more clearly and effectively, in my opinion. You can read more about PBM’s and their role in drug pricing by clicking here
Doctor’s Choice Medicare Expert Julia: How will the MFN Policy affect you?
If you are on Original Medicare with a Medigap Supplement, chances are the price you pay will not change. Since your supplement plan picks up most, if not all what Medicare does not pay, you should not expect to see drops in what you owe for such medications.
If you have Original Medicare only or are on a Part C Advantage Plan, you might see lower prices for your medications/therapies. Those in either of these situations currently pay 20% of the full cost of Part B meds- this could be a lot, especially for the 50 drugs in question.
One concern with the passing of the MFN Policy is that it could reduce access to Part B medications by patients. This would affect beneficiaries of both Medigap Supplement and Part C Advantage Plans.
Since reimbursement for the medications will be reduced, possibly to a level that may not cover the cost of acquiring and administering the therapies, providers will have to decide if the price Medicare pays is enough for them to keep offering such drugs.
If their answer is no, patients may be offered alternative therapies or could be forced to switch to different oncologists who agree to offer the Part B drug in question. Not only does this mean meeting and trusting a new doctor but could also add issues regarding provider networks and further travel to receive therapy.
If the Executive Order is passed after the induction, big changes could be on the horizon. However, the new MFN Policy will be enacted over a seven-year span, during which it will be closely monitored to evaluate its efficacy. This slow rollout will ensure that beneficiaries will maintain access to necessary medications while achieving Medicare’s goal of cutting drug prices.
CMS is also working on a similar model for Part D medications that could be enacted if this first attempt proves successful. In turn, this could reduce costs for brand name medications that you pick up at the pharmacy.
Although policies are not set in stone, they could be a good first step to making medications in the United States more affordable.
There is no need to panic! If you’re enrolled with Doctor’s Choice you can seek solace in knowing that we will stay abreast to all important updates and decisions made at a Federal level. We will continue to support you through any changes that come.