The Department of Health and Human Services (HHS) issued an interim final rule with comment period on November 27, 2020, that attempted to initiate a new drug-pricing methodology on separately-payable Medicare Part B drugs beginning on January 1, 2021. However, actions by federal courts in two separate actions by drug manufacturers and treatment providers have enjoined the initiation of the new rules pending completion of the required rulemaking notice and comment period. The future of the changes being sought to the drug-pricing regime is now uncertain due to the change in presidential administration, the results of the notice-and-comment period and related potential pricing change efforts in Congress.
Timeline of the MFN rule implementation
On October 30, 2018, HHS released an advanced notice of proposed rulemaking asking for feedback on potential elements of a new international price-driven model for Part B drugs. The comment period closed on December 31, 2018, but then there was a long period of silence on the new model. Somewhat unexpectedly on November 27, 2020, HHS published the interim final rule based on the October 30, 2018, advanced notice. The new Most-Favored Nation (MFN) pricing model was scheduled to go into effect on January 1, 2021, but also had a comment period that closed on January 26, 2021 – more than three weeks after the initiation of the new rule.
Because of the structure of the new pricing model (see below) and the timing of the comment period, drug manufacturers and several associations of infusion, dialysis and other providers filed suit in several federal courts to challenge the rule and the impact of the new MFN model. The substance of these challenges asserted that: (1) legally HHS had not followed proper notice and comment rulemaking in issuing the November 27, 2020, rule; (2) practically, the requirement to implement the rule in just over a month (particularly after 23 months of silence from the government) would be unfeasible for providers; and, (3) financially it would bring a large adverse impact to providers at a time when they were struggling with the COVID-19 pandemic.
Federal courts agreed. The Federal District Court for the District of Maryland issued a temporary restraining order and preliminary injunction on December 23, 2020, delaying the January 1, 2021, effective date for two weeks. On January 6, 2021, the court extended the order to January 21, 2021. Meanwhile, the Southern District of New York issued a preliminary injunction prohibiting the enforcement of the MFN rule specifically against Regeneron Pharmaceutical’s EYLEA, and the Northern District of California issued a preliminary injunction preventing the implementation of the MFN rule until the completion of the regulatory notice-and-comment process. The common reasoning of the courts was that HHS had not followed the notice-and-comment procedure of the Administrative Procedure Act for the MFN rule and that there were no grounds for invoking an exception to those rules as argued by HHS.
Proposed MFN model structure
The structure proposed for pharmaceutical pricing under the MFN rule would cap the cost to the Medicare program of Part B drugs at the lowest price paid to the drug manufacturer in a developed country for a particular drug. Initially, this would be limited to the 50 highest-cost drugs as determined by HHS, and so would disproportionally impact chemotherapy and high-cost infusion drugs. The program is designed as a pilot program, though one that would eventually cover all providers and all Part B drugs. Drugs would be added to the list of included drugs over the four-year period from the beginning of the program and the whole pilot program would run for seven years. In order to calculate the domestic price of a drug to the Medicare program, data on drug costs in the rest of the developed world would need to be analyzed for each drug included in the program.
Future uncertainty
The direction the Trump administration wanted to take to reduce pharmaceutical costs was clear through the interim rule and its implementation. It is not so clear what the Biden administration wants to prioritize relative to drug cost reduction or the steps it will take to get there. In addition, drug price reduction may have a very different prioritization in the legislative and regulatory agendas than it did prior to the pandemic and other events over the last year.
In the short term, it is clear that the MFN rule cannot be finalized until the comments received by January 26, 2021, are analyzed and digested by HHS. Even then, there is no guarantee that the rule, as previously published, would progress to finalization. Given the different tenor of the new administration and the Congressional make-up, there will be extensive policy discussions and steps throughout 2021 to shape any new drug price reduction efforts. These discussions will be influenced by the provider community, drug manufacturers, the patient community and the government.
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