On November 27, 2020, CMS published the Most Favored Nation (MFN) Interim Final Rule (IFR) seeking to lower the amount of money paid for 50 high-cost Medicare Part B drugs to the lowest price that drug manufacturers receive in other developed countries. Almost immediately, interested parties across the country filed lawsuits seeking to stop the rule from taking effect. We will discuss the MFN rule and the procedures CMS took to promulgate it, three of the most prominent lawsuits regarding this rule, as well as discuss the impact the Biden Administration can have on the future of this rule.
Most Favored Nation Rule
The rule would establish a new, mandatory reimbursement model for Medicare Part B drugs (i.e., drugs administered in a doctor’s office such as chemotherapy). The question the MFN Model is trying to answer is whether closely aligning payment for Medicare part B drugs with international prices and removing incentives to use higher-cost drugs can control the growth in Medicare Part B spending without adversely affecting quality of care for beneficiaries.
The MFN price is based on the lowest GDP-adjusted price paid by an OECD member country with a GDP per capita that is at least 60 percent of the U.S. GDP per capita. The MFN price will be phased in over four years of the total seven-year model, phasing in 25% per year for the first four years. CMS will also not allow for the model payment amount for a drug to exceed the current Average Sales Price (ASP). Additionally, the current add-on payment to providers for Part B drugs (6 percent of ASP) will be replaced with a flat payment per dose that is uniform for all included drugs in the MFN Model.
The MFN Model affects 50 Medicare Part B drugs that encompass a high percentage of Medicare Part B drug spending. CMS developed this list of 50 Part B drugs based on annual Medicare Part B spending in 2019, excluding certain claims and types of drugs. CMS will assess this list of 50 drugs each year and update the list based on annual Medicare Part B spending, after applying certain exclusions.
Litigation
Since CMS announced the MFN Model IFR, multiple parties filed lawsuits in federal court. Most notably, the Pharmaceutical Research and Manufacturers of America (PhRMA), Biotechnology Innovation Organization (BIO), Regeneron, and the Community Oncology Alliance (among other plaintiffs) each filed a lawsuit challenging the MFN rule. Each plaintiff filed suit along similar lines, including violations of the Administrative Procedure Act (APA) that requires public comment periods for most rulemaking.
Table 1. Summary of Case and Arguments
| Case | Plaintiff’s Arguments Against the MFN Rule | Results |
| PhRMA v. HHS | CMS violated the Administrative Procedure Act by failing to adopt the MFN Rule through notice-and-comment rulemaking, additionally CMS did not show “good cause” required for the interim final rule to skip the notice-and-comment rulemaking procedures. The MFN Rule violates clear statutory limits on CMS’s authority to test payment models granted to the Center for Medicare & Medicaid Innovation under the Affordable Care Act. The MFN Rule violates the Constitution by using a regulatory process to rewrite the Medicare statute and transform the reimbursement system for physician-administered medicines in the U.S. | Temporary Restraining Order Granted until January 20, 2021 Update: on January 13, the Maryland District Court granted a stay. |
| Bio v. HHS | CMS violated the Administrative Procedure Act by failing to adopt the MFN Rule through notice-and-comment rulemaking, additionally CMS did it show “good cause” required for the interim final rule to skip the notice-and-comment rulemaking procedures. The MFN Rule violates clear statutory limits on CMS’s authority to test payment models granted to the Center for Medicare & Medicaid Innovation under the Affordable Care Act. The MFN Rule violates the Constitution by using a regulatory process to rewrite the Medicare statute and transform the reimbursement system for physician-administered medicines in the U.S. | Preliminary Injunction Granted – MFN Rule vacated until notice-and-comment rule making procedures are undertaken |
| Regeneron Pharmaceuticals v. HHS | CMS violated the Administrative Procedure Act by failing to adopt the MFN Rule through notice-and-comment rulemaking, additionally CMS did it show “good cause” required for the interim final rule to skip the notice-and-comment rulemaking procedures. The MFN Rule violates clear statutory limits on CMS’s authority to test payment models granted to the Center for Medicare & Medicaid Innovation under the Affordable Care Act. The MFN Rule violates the Constitution by using a regulatory process to rewrite the Medicare statute and transform the reimbursement system for physician-administered medicines in the U.S. CMS violated the APA because it acted arbitrarily and capriciously by not considering certain statutorily mandated factors in their analysis of the MFN Rule. | Preliminary Injunction Granted – MFN Rule barred from applying to Regeneron’s drug EYLEA |
| COA v. HHS | CMS violated the Administrative Procedure Act by failing to adopt the MFN Rule through notice-and-comment rulemaking, additionally CMS did it show “good cause” required for the interim final rule to skip the notice-and-comment rulemaking procedures. The MFN Rule violates clear statutory limits on CMS’s authority to test payment models granted to the Center for Medicare & Medicaid Innovation under the Affordable Care Act. The MFN Rule violates the Constitution by using a regulatory process to rewrite the Medicare statute and transform the reimbursement system for physician-administered medicines in the U.S. | N/A |
Federal courts in Maryland, California, and New York have weighed in on the PhRMA case, BIO case, and Regeneron Pharmaceuticals case, respectively. In New York, the District Court preliminarily enjoined CMS from applying the MFN Rule to Regeneron’s drug EYLEA; whereas, the District Court in California preliminarily enjoined CMS from implementing the MFN Rule altogether.
The District Court order in California vacated the MFN Rule until CMS completes the notice-and-comment rulemaking process proscribed under the APA. Notably, the court order does not require CMS to undergo notice-and-comment rulemaking, rather the court requires CMS to undergo notice-and-comment rule making only if CMS intends to promulgate the MFN Rule. In New York Federal District Court, a Judge ruled in a similar fashion for Regeneron Pharmaceuticals, granting Regeneron’s preliminary injunction, however, the scope of this preliminary injunction is much narrower. In fact, the court order only applies to Regeneron’s drug, EYLEA.
On January 13, the District Court in Maryland granted a stay.
Considering the various lawsuits levied against CMS for promulgating the MFN Rule without initiating notice-and-comment rulemaking, CMS agreed to (1) not appeal the court decision in California nor the decision in New York and (2) they will not promulgate the MFN Rule without first publishing in the Federal Register.
None of the courts have touched the constitutional claims or statutory interpretation claims levied by the plaintiffs. Instead, each court only ruled on the APA procedural claims, finding each time that CMS failed to properly promulgate the IFR because they could not show the good cause required to bypass notice-and-comment rulemaking procedures.
What Could the Biden Administration Do Next?
The Biden Administration could choose to go forward with the notice-and-comment rule making process and promulgate the MFN Model Rule as is. Alternatively, the Biden Administration can go back to the drawing board re-issue a new MFN proposal and proceed through notice-and-comment rulemaking. Or, they can scrap the rule altogether. It is increasingly unlikely that the Biden Administration will choose to defend and re-issue the rule with a comment period. President Biden released a regulatory freeze on January 20 that would immediately rescind any unpublished or proposed rulemaking or pause any rules that have not taken effect.
However, it is “quite conceivable” that Biden would pressure Congress to pass drug pricing legislation to lower drug prices in a similar fashion as the MFN Model. For example, the Elijah E. Cummings Lower Drug Costs Now Act (H.R. 3) supported by House democrats includes a very similar price control mechanism – Medicare negotiations for a selection of high-cost Part B and Part D drugs would be pegged to international prices (in addition to a variety of other provisions). The current lawsuits would not have any obvious implications for an act of Congress, especially because the courts ruled primarily on procedural matters of rulemaking.