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How to Address the Most Favored Nation Model and its Impact on Drug Prices

Most Favored Nation (MFN) pricing for Medicare Part B drugs went into effect on Jan. 1 and will have a significant impact on many organizations. This article will explain key aspects of the new pricing rule.

By Richard Parker, Executive Director and Brian S. Herdman, Operations Manager - Financial Reimbursement

The Trump Administration’s Interim Final Rule included a Most Favored Nation (MFN) Model for Part B drug pricing. If not overturned by the new administration, this new model will have a significant impact on what Medicare and potentially all payers will pay for certain drugs in an outpatient setting.

The new rule leverages a provision in the Affordable Care Act to create temporary payment models. This model is defined as a seven-year study to see if aligning Part B drug payment with international prices will bring down Part B drug spending. CMS expects that the model will eventually save 65% of the nearly $30 billion per year it spends on Part B drugs expenditures.

Although no one can argue that drug costs in the United States are significantly higher than most areas of the world, this sudden regulation change will affect all hospitals and many physician practices, especially in oncology and hematology service lines.

The Rule took effect on January 1 when it dropped Part B drug prices for 50 most common separately reimbursable drugs to a blended MFN Model price and replaced the 6% of cost add-on with a per-dose add-on. The Rule is scheduled to be phased in over a four-year period beginning January 1, 2021 at 25% of the MFN model price per year.

In many cases, the international pricing is about a quarter of the U.S. average subscription price. You can bet that if CMS is lowering their prices that commercial and HMO payers will follow suit. What can be done in the short term to mitigate this impact?

  • A draconian approach would be to discount the drug invoices to account for the estimated impact until a renegotiation can be completed.
  • Renegotiation with drug companies and/or payers.
  • Put the pharmacy director in charge of finding alternative formularies/pricing.

    Some of the CFOs we have talked with are suggesting a combination of all three!

    In addition, it is important to review all managed care contracts to determine what impact this will have on reimbursement in the short term. CMS designed this program to apply broadly across outpatient hospital departments and physician practices of all sizes, so providers will have to separately determine if this is simply one more set of regulations affecting operations, or a threat to financial stability of a service line.

    For more information, please contact Richard Parker, Executive Director at 609-918-0990 or

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