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USC-Brookings Schaeffer on Health Policy

How should CBO treat the “Most Favored Nation Model” interim final rule for Medicare Part B drugs?

Editor's Note:

This analysis is part of the USC-Brookings Schaeffer Initiative for Health Policy, which is a partnership between Economic Studies at Brookings and the University of Southern California Schaeffer Center for Health Policy & Economics. The Initiative aims to inform the national health care debate with rigorous, evidence-based analysis leading to practical recommendations using the collaborative strengths of USC and Brookings.

The Congressional Budget Office (CBO) normally incorporates into the budget baseline the effects of a final rule that determines spending in mandatory programs like Medicare. CBO’s standard treatment of adjusting its estimates of spending presumes that rules are properly promulgated, consistent with an agency’s statutory authority and the Administrative Procedures Act (APA). The APA requires giving interested parties notice about the specific provisions being proposed plus time to comment on them, as well as directing that the issuing agency must respond meaningfully to comments. The Medicare statute imposes a minimum 60-day period after publishing a proposed rule during which public comments can be submitted, and the APA stipulates that the provisions detailed in a proposed rule can only be substantially modified in the final rule as a logical outgrowth of public comments.

Legislative proposals to delay or repeal a final regulation that lowers mandatory spending are appropriately scored by CBO as increasing the deficit. In the rare instances when a final rule unambiguously violates Medicare and APA requirements, instead of operating on “autopilot”, CBO need not—and should not—follow its normal practice of incorporating the fiscal effects of a rule into its baseline. This paper explains why CBO should not incorporate into its baseline the recent interim final rule markedly changing how Medicare pays for certain physician-administered drugs.

Why the Most Favored Nation Part B Drug Rule Violates Medicare and APA Requirements

The Most Favored Nation (MFN) Model interim final rule published on November 27 by the Centers for Medicare and Medicaid Services (CMS) is an extreme—and possibly unprecedented—example of a final regulation that contravenes statutory requirements. Because it cannot be implemented on—or even close to—its January 1st effective date, the MFN model will disrupt care by limiting access to life-saving treatments and cause administrative chaos. During the initial months, physicians administering drugs will be at significant risk of incurring large losses: the MFN model sharply reduces what Medicare pays physicians when acquiring drugs for their patients but does not require manufacturers to reduce commensurately the prices physicians pay.

Limiting Access Contradicts the Requirement to Preserve and Enhance Quality of Care

The statutory authority cited by CMS as the basis for the MFN Model delegates exceptionally broad authority but establishes several critically important guardrails. Notably, 42 U.S. Code § 1315a explicitly assigns key responsibility to the CMS Office of the Actuary and directs that:

“The Secretary shall focus on models expected to reduce program costs under the applicable subchapter while preserving or enhancing the quality of care received by individuals receiving benefits under such subchapter.”

The CMS Actuary estimates (Table 11) that, once “steady state” is achieved, 1 in 5 beneficiaries will have “no access” to cancer and other Part B drugs included in the MFN model; an additional 1 in 10 patients will have to shift where they receive care. Given the administrative uncertainty, lack of adequate preparation, and risk of large financial losses for physicians, Medicare patients’ access to care will be far worse during the initial quarters of implementation.

On its face, sharply limiting access to care contradicts the statutory guardrail that requires “preserving or enhancing the quality of care received by” Medicare beneficiaries.

MFN Model Differs Significantly from Initial Proposal

The Trump Administration has omitted the essential step of issuing a Notice of Proposed Rulemaking, skipping instead to an Interim Final rule, which requires a finding of “good cause to issue a final rule without first publishing a proposed rule”. In the MFN, CMS links its “good cause” justification to:

“High drug prices are impacting the wallets of Medicare beneficiaries, especially during the Coronavirus disease 2019 Public Health Emergency (PHE). Increases in drug prices are accelerating at a rate that significantly outpaces the growth in spending on other Medicare Part B services, and prices in the United States (U.S.) for most Medicare Part B drugs with the highest Medicare spending far exceed prices in other countries.”

However, the MFN Model does not affect the price of drugs related to the Covid-19 pandemic and the “discovery” of high Medicare Part B drug costs is hardly news. The initial CMS proposal, published 25 months ago as an “Advanced Notice of Proposed Rulemaking (ANPRM), contained a similar assessment regarding high Part B drug costs and the Office of the Actuary regularly has published these conclusions:

“This faster growth was influenced by faster per enrollee expenditure growth for physician and clinical services—which was attributable, in turn, to an increase in the volume and intensity of services and an acceleration in spending growth for physician-administered drugs.”

Deeper Reimbursement Cuts under MFN Model Worsen Access and Impair Quality of Care

Important provisions of the MFN Model differ significantly from the ANPRM, which envisioned more modest reductions in drug reimbursement. Nonetheless, the earlier approach would have generated  access problems, and substantially deeper cuts to Medicare reimbursement would significantly exacerbate patient access to needed—and potentially life-saving—therapies.

If MFN participants choose not to provide MFN Model drugs or prescribe alternative therapies instead, beneficiaries may experience access to care impacts by having to find alternative care providers locally, having to travel to seek care from an excluded provider, receiving an alternative therapy that may have lower efficacy or greater risks, or postponing or forgoing treatment.”

Administrative Chaos will Impair Access to and Quality of Care

The month between publication and “going live” does not give CMS time to gather needed data, develop programmatic guidance, and instruct its contractors how much to reimburse, much less to train providers on the new rules. Even after Medicare reimbursement rates are known, providers and manufacturers will need months to negotiate contracts setting what physicians will pay to acquire a drug for their patients—assuming that it makes economic sense for manufacturers to reduce their prices to the MFN reimbursement levels. The MFN Model does not address access issues for beneficiaries, in contrast to H.R. 3, which would adopt international prices but compel manufacturers to lower their prices to Medicare reimbursement amounts. H.R. 3 would also have limited prices to privately-insured patients as well as Medicare beneficiaries, further reducing the risks to access in Medicare.

Not Issuing Proposed Rule in 25 Months After Initial Proposal Undermines Interim Final Rule

Paradoxically, the Trump Administration justification for the MFN interim final rule is undermined by having issued an ANPRM in October 2018, an MFN Executive Order this summer, and White House press releases and comments by President Trump. The issuance of an ANPRM undermines both the “good cause” required to justify publishing an interim final rule and the rationale for skipping a Notice of Proposed Rulemaking. Had a proposed rule been published in the intervening 25 months, it would have generated a 60-day comment period during which thousands of public comments would have been filed, and CMS would have had to meaningfully respond to the public comments and could only change provisions if they were a logical outgrowth of comments. Despite having omitted these key APA procedural requirements, the MFN interim final rule differs importantly from the preliminary and programmatically vague provisions advanced in 2018.

MFN is an Unprecedented Assault on Access to and Quality of Care for Medicare Beneficiaries

The text of the MFN regulation highlights a literally unprecedented reduction in access to care by Medicare beneficiaries. Of the hundreds of Medicare regulations (and tens of thousands of pages) published by CMS over the past several decades, no other rule has envisioned harming beneficiaries en masse by impairing patient access to and quality of care.

MFN is Highly Unlikely to Be Sustained

Multiple parties, including both providers and pharmaceutical manufacturers, have filed suits seeking to block the MFN rule. On occasion, CBO has taken into account the assessment of its General Counsel regarding the likelihood of parties in litigation prevailing when establishing its baseline. The substantive and procedural deficiencies underlying the MFN strongly suggest that the regulation is unlikely to be sustained.

The Initiative is a partnership between the Economic Studies program at Brookings and the USC Schaeffer Center for Health Policy & Economics, and aims to inform the national health care debate with rigorous, evidence-based analysis leading to practical recommendations using the collaborative strengths of USC and Brookings.

Acknowledgments:

Steven Lieberman is a Nonresident Fellow with the USC-Brookings Schaeffer Initiative for Health Policy.  He consults with PhRMA on issues related to Congressional Budget Office scoring and would like to thank Paul Ginsburg and Shawn Bishop for their insights and helpful comments.

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