CMS Most Favored Nation Drug Payment Model – What You Need to Know

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CMS Most Favored Nation Drug Payment Model – What You Need to Know

The end of 2020 is upon us, for better or worse, and the healthcare industry as a whole is envisioning a brighter 2021 ahead of us, especially with the availability of two new COVID-19 vaccines that could signal an end to the pandemic.  But we want to make sure our hospital 340B covered entities are aware of another important change, beginning with the new year – the CMS Most Favored Nation drug payment model, which was published as an interim final rule on November 27th. It has taken some time to fully understand its impact, below is what we believe you need to know…

What is it? 

The MFN model is a revised Medicare Part B reimbursement methodology for certain high-cost drugs that will reduce payments to most hospitals and physician offices. 

When does it go in effect?

The first wave of changes was initially scheduled to go into effect on January 1, 2021.  However, on December 23rd, the U.S. District Court for the District of Maryland issued a temporary restraining order, delaying implementation for 14 days, i.e. January 6, 2021.  Additional elements of the MFN model will be phased in over the next 7 years.  There has been a fair amount of speculation that this rule will be suspended or eliminated altogether by the incoming Biden Administration, and a number of legal challenges to the rule have been initiated, but for now, hospitals will need to plan on executing operational changes to comply with the rule on January 6.

Which 340B hospitals will be impacted?

The MFN model is mandatory for disproportionate share hospitals (DSHs), rural referral centers (RRCs) and sole community hospitals (SCHs).   Critical access hospitals (CAHs), PPS-exempt cancer hospitals and free-standing children’s hospitals are excluded, and should not be impacted, at least for now.

What drugs are included?

The MFN model identifies 50 high-cost drugs and biologicals (including some biosimilars), outlined in Table 2 of the rule.  The list primarily consists of specialty injection drugs and other agents commonly administered in infusion centers.  Keep in mind that the list is fluid, as CMS intends to add and remove drugs on an annual basis, selecting the “top 50” drugs by total allowed drug charges from the prior year’s Medicare Part B claims.  Also, some drug categories are presently excluded from the MFN model, including oral drugs, intravenous immune globulin products and medications with an Emergency Use Authorization or FDA-approval for treatment of COVID-19, among others.  CMS is gathering feedback on whether other categories, like blood products and gene/cell therapies should be included or excluded from the model.

How is reimbursement defined in this new model?

The MFN drug payment amount will be calculated using a phased-in formula based on a ratio the “MFN price” and the manufacturer’s reported average sales price (ASP), along with a per-dose add on payment. 

  • The “MFN price” will be determined by the lowest adjusted international price for the drug (more specific details on the price definition can be found in section III.E of the rule). 
  • The add-on payment for Q1 2021 is $148.73 per dose of qualifying MFN drug. 
  • Importation Action!  Note that you must bill for the add-on payment separately on the claim form by using a new HCPCS code – M1145, and setting the “units” for this line to equal the number of MFN drug doses administered for the encounter (more specific details on the claims processing of the MFN model can be found in section III.G of the rule).

What will this mean to my reimbursement in 2021 and beyond?

It depends on your covered entity type.  In 2021, DSH, RRC and non-rural SCH covered entities will see reimbursement similar to their current ASP – 22.5%, and in fact, may see slightly higher revenue for these drugs due to the add-on payment.  However, MFN model drugs that have pass-through status will generate lower reimbursement this coming year.  Rural SCH covered entities unfortunately will see a decrease in revenue (340B Health has estimated up to a 16% reduction on the MFN model drugs), as they move away from a rate of ASP +6% to the MFN model. 

After 2021, the ratio of the MFN drug payment amount leans more to the MFN price and away from the ASP price, so reimbursement for all participating providers is going to be decreased, despite the continuation of add-on payments and inflation adjustments.  HHS has provided estimates on payment reductions ranging from up to 3% to as high as 60% once the MFN model is fully implemented.

Is this thing going to stick?

Many experts in health policy are saying probably not, but we’re not sure.  Many are anticipating that the incoming Biden Administration will thoroughly scrutinize, modify or even altogether abandon the rule, and there is an open comment period through January 26, 2021, for stakeholders to submit feedback on the rule.  Numerous organizations, representing both providers as well as pharmaceutical manufacturers, have expressed opposition to the model, and lawsuits have already been filed to halt implementation. However, barring any type of success in delaying or enjoining the rule here in tail end of December, providers should be prepared for the MFN model to begin January 6.

What should I do right now to prepare?

            A few things:

  1. Communicate – Talk with your billing/revenue cycle departments to make sure they are aware of the need to update their claims processing procedures for the MFN model beginning January 6, 2021.
  2. Analyze – Work with your finance teams to analyze the budget impact this could yield for your organization in 2021.  Remember that DSH, RRC and non-rural SCH covered entities will probably not see a negative impact next year (except for those pass-through drugs), but rural SCH entities will see a dip in reimbursement.
  3. Comment – Consider submitting comments to CMS on the rule.  340B Health members should be on the lookout for a template to submit comments soon. 

As always, reach out to us if you have any questions about the MFN model, we are always glad to help our clients navigate complicate changes to their 340B programs!


About Author

Greg Wilson, PharmD, BCPS, 340B ACE

Lead pharmacist auditor, providing onsite and remote support for audits. Greg has over 15 years of health care experience, serving in a variety of roles in hospital and health system pharmacy. Most recently, Greg was the Director of Clinical Pharmacy Strategy at University of Pittsburgh Medical Center (UPMC), a large integrated delivery network based in Western Pennsylvania. At UPMC, Greg was responsible for system-level oversight of formulary management, including coordination of the health system’s Pharmacy & Therapeutics Committee. Greg was also responsible for organizing centralized support for UPMC 340B covered entities, with a focus on 340B program compliance, optimization, strategic planning, and advocacy. During his tenure, UPMC experienced tremendous growth in terms of 340B program participation and financial performance, advancements in both internal and external auditing practices, and HRSA audit preparation. Greg has spoken at regional and national forums and has hosted 340B Health round table events focusing on health-system pharmacy. His perspective involves large health system and DSH 340B program administration, as well as clinical pharmacy practice.

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