President Trump Finalizes Rebate Rule and Most-Favored Nation Model for Medicare Part B

President Trump Finalizes Rebate Rule and Most-Favored Nation Model for Medicare Part B

Nov 20, 2020

Client Alert

Brownstein Client Alert, November 20, 2020

On Friday, Nov. 20, President Trump, alongside Department of Health and Human Services (HHS) Secretary Alex Azar and Centers for Medicare and Medicaid Services (CMS) Administrator Seema Verma, announced the finalization of two drug pricing reforms: the Medicare Part D Drug Rebate Rule and the Medicare Part B Most-Favored Nation (MFN) Model. These rules implement two executive orders (EOs)—“Lowering Prices for Patients by Eliminating Kickbacks to Middlemen” (EO 13939) and “Lowering Drug Prices by Putting America First” (EO 13948)—issued by President Trump on July 24 and Sept. 13, respectively. Together these rules aim to reduce the cost of prescription drugs by passing discounts on directly to patients at the pharmacy counter, and ensuring Medicare pays no more than what other similarly situated countries pay for Part B drugs. Further details on these two rules can be found below.

The HHS Office of Inspector General (OIG) also finalized “Revisions to the Safe Harbors Under the Anti-Kickback Statute and Civil Monetary Penalty Rules Regarding Beneficiary Inducements,” and CMS finalized the “Modernizing and Clarifying the Physician Self-Referral Regulations” rule on Friday. The OIG rule implements seven new safe harbors, modifies four existing safe harbors, and codifies one new exception under the Beneficiary Inducements civil monetary penalty (CMP) law. The CMS rule creates new, permanent exceptions to the Stark Law for value-based arrangements, with the goal of unleashing innovation.

In addition to the finalization of the four aforementioned rules, President Trump announced plans to terminate the Food and Drug Administration’s (FDA) Unapproved Drug Initiative. This program was created in 2006 to reduce the number of drugs available on the market that lack FDA-approved New Drug Applications or Abbreviated New Drug Applications. According to the president and administration officials, the program has been linked to significant drug price increases of between 1,000-5,000%, as well as drug shortages. Terminating the program will therefore prevent ‘bad actors’ from using FDA to enjoy artificial monopolies over older drugs.

Rebate Rule

  • This rule, finalized by the HHS OIG, updates the Discount Safe Harbor provision of the Anti-Kickback Statute (AKS) to explicitly exclude rebates on prescription drugs paid by manufacturers to pharmacy benefit managers (PBMs) and Part D plans from the definition of a "discount."
  • The rule also creates a new safe harbor designed specifically for price reductions on pharmaceutical products charged to the patient at the pharmacy counter.
  • Lastly, the rule creates new safe harbor protection for fixed-fee services arrangements between manufacturers and PBMs.
  • According to President Trump, the rule could save patients anywhere from 30-50% on out-of-pocket costs.
  • The rule will be effective Jan. 1, 2022, rather than Jan. 1, 2020, as was intended in the proposed rule. According to HHS, this delay allows entities well over a year to make any necessary changes to their business arrangements.

Most-Favored Nation Model

  • The MFN Model, finalized by CMS, aims to lower prescription drug costs by paying no more for some Medicare Part B drugs than the lowest price drug manufacturers receive in other similar countries.
  • The MFN Model will focus on a set of 50 Medicare Part B drugs that encompass a high percentage of Part B drug spending.
  • The MFN Model will also pay providers a flat add-on amount for each dose of an MFN drug, instead of a percentage of each drug’s cost as is currently practice, thereby removing the tie between drug cost and the add-on amount.
  • According to President Trump, this rule could save patients anywhere from 50-80% in prescription drug costs.
  • HHS projections suggest that this model will result in an $85 billion decrease in spending. According to Sec. Azar, if pharmaceutical companies apply the complete model, there will be a loss of between $2-2.5 billion over the year across the entire industry, which spends approximately $70 billion a year on research and development.
  • The MFN model will be effective Jan. 1, 2021, and the rule is slated to operate for seven years until Dec. 31, 2027. The MFN Price will be phased-in over the first four years of the seven-year model, phasing in at 25% per year for the first four years, and then continuing at 100% after the fourth year.
  • This rule was issued as an Interim Final Rule with a Comment Period, which will remain open for 60 days after the rule’s publication in the Federal Register.

The Trump administration plans for the two rules to go into effect before President-elect Joe Biden assumes office on Jan. 20; however, both are expected to face significant administrative and legal hurdles. The rebate rule was initially released on Jan. 31, 2019, but was subsequently withdrawn, though not officially, due to worries that it might actually raise Medicare premiums. Recent reports, however, indicate that the revised rule takes into account the EO’s mandate that it does not raise premiums or increase federal spending. The rule has the support of the pharmaceutical industry, but is opposed by PBMs. Organizations that represent PBMs, including the Pharmaceutical Care Management Association, could threaten to sue.

Similarly, the MFN model will face significant pushback from the pharmaceutical industry, and the industry is expected to bring several suits against the rule. Though Interim Final Rules do not need to be preceded by proposed rules and they take effect immediately, there are stringent restrictions on their use, and agencies must demonstrate that following the notice and comment rulemaking process would be “impracticable, unnecessary, or contrary to the public interest." Representatives for the pharmaceutical industry, including the Pharmaceutical Research and Manufacturers of America and the Biotechnology Industry Organization, are therefore likely to use this as their opposition. Both organizations have indicated they are considering all options available to block this rule from going into effect.

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Charlie A. Iovino Senior Policy Advisor and Counsel T 202.383.4424 ciovino@bhfs.com
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