The Trump administration is trying to overhaul some providers’ payments for outpatient drugs in six weeks as it makes a last-ditch attempt to finalize drug-pricing policies that have languished in regulatory limbo.
A model through the Center for Medicare and Medicare Innovation announced Friday would require mandatory participation from healthcare providers starting Jan. 1, 2021, though there are several categories of exceptions. The model would change providers’ payment for administering drugs from a percentage of a drug’s average sales price to a flat fee and tie reimbursement to prices charged in foreign countries.
Providers have already sounded the alarm about reimbursement cuts.
“Hospitals will have to absorb losses while drug companies are free to continue their trend of charging exorbitant prices. This will put hospitals in the terrible position of having to divert resources from other patient care simply to buy the drug therapies they need for their patients,” said American Hospital Association Executive Vice President Tom Nickels.
Most-favored nation model
The Trump administration’s international reference pricing plan is limited to setting reimbursement for outpatient drugs. The model is supposed to begin on Jan. 1, 2021, which gives providers only six weeks to prepare.
Instead of paying drugs’ average sales price, Medicare will now also factor in a “most-favored nation” price determined by finding the lowest price a drugmaker offers in certain OECD member countries. The international price would carry heavier weight in the formula over a four-year phase-in period.
Hospitals questioned the rule’s legality and warned it could harm healthcare providers.
“We urge the Administration to withdraw this rule immediately and replace it with a serious effort at drug pricing reform,” Nickels said.
Providers are now paid a percentage of a drug’s average sales price to administer Part B drugs, which some have criticized as incentivizing high drug prices. The model would replace this method with a flat add-on fee.
The administration estimated the rule could save the federal government and beneficiaries more than $80 billion over seven years, but some of the savings will come from reduced beneficiary access. If drugmakers don’t lower their prices, then some providers may choose to not administer certain drugs at a loss, thus reducing access.
“Eligible providers and suppliers will need to decide if the difference between the amount that Medicare will pay and the price that they must pay to purchase the drugs would allow them to continue offering the drugs,” the final rule states.
Community oncologists were displeased with the changes, and called the model “brazen and unhinged.”
“Rather than give community oncology providers the support they need during this third wave of the pandemic, as they struggle to keep their facilities and staff COVID-19 free while treating cancer patients, the Trump Administration is essentially throwing these providers under the bus,” Community Oncology Alliance Executive Director Ted Okon said.
Participation would be mandatory for healthcare providers with some exceptions, including cancer hospitals, children’s hospitals, ambulatory surgical centers, critical-access hospitals, rural health clinics, federally qualified health centers, and Indian Health Service facilities.
Some providers may also be able to apply for exceptions from the model due to financial hardship, said Manatt, Phelps & Phillips Senior Advisor Ian Spatz.
Capitol Street Managing Director Ipsita Smolinski said the rule is likely to be challenged by drugmakers and providers because it is nationwide and mandatory.
“The MFN rule does not fit with the parameters of the CMS innovation center: to be a limited pilot that will be tested and expanded if it works, and restricted or discontinued if it doesn’t work,” Smolinski said.
The model says that it will eventually include the top 50 drugs that make up the most Medicare Part B spending.
Drugmakers are likely to sue to stop the actions, and Trump admitted as much during a speech on Friday.
“I presume they’ll sue, and it is a suit that they should never be able to win,” Trump said.
The most-favored nation policy could also be vulnerable on regulatory grounds because the administration skipped straight from a regulatory draft to an interim final rule, even though an intermediate proposal was under White House review for more than a year. Legally, an agency has to find that it has “good cause” to issue a final rule without first publishing a proposed rule.
“PhRMA is considering all options to stop this unlawful onslaught on medical progress and maintain our ability to win the fight against COVID-19,” said Pharmaceutical Research and Manufacturers of America President and CEO Stephen Ubl.
President-Elect Joe Biden has not expressly endorsed international reference pricing plan like Trump is proposing, but Biden has advocated for an independent board to assess fair prices for drugs without competition. Those assessments would include pricing data from other countries.
“I hope they have the courage to keep it, because the powerful drug lobby, Big Pharma, is putting pressure on people like you wouldn’t believe,” Trump said Friday, though he has not conceded that he lost the election.
Friday was the last business day the Trump administration had to ensure the regulations it is issuing take effect before Inauguration Day.
Drug rebate reform
The Trump administration also moved forward with a policy prohibiting pharmacy benefit managers frfom retaining rebates paid by drugmakers. This rule applies to the Medicare Part D program.
Insurers and pharmacy benefit managers have balked at the policy, as it would expose the amounts of rebates they receive from drugmakers and redistribute money they use to keep premiums steady.
The final rule would go into effect in 2022.
Drugmakers support and have actively lobbied for rebate reform, but pharmacy benefit managers said they would sue to stop the rule from taking effect.
“PCMA will explore all possible litigation options to stop the rule from taking effect and destabilizing the Medicare Part D program that millions of beneficiaries rely on,” said Pharmaceutical Care Management Association President and CEO JC Scott.
America’s Health Insurance Plans also criticized the proposed rebate reform and said it would take action to try to reverse the policy.
Congress could also gain scored savings from trying to stop the policy, Spatz said.