The Most Favored Nation (MFN) Model tests an innovative way to lower prescription drug costs by paying no more for high-cost Medicare Part B drugs and biologicals (hereinafter called “drugs”) than the lowest price that drug manufacturers receive in other similar countries. This is in line with President Trump’s mandate to lower drug costs and recent Executive Order 13948 on Lowering Drug Prices by Putting America First (September 13, 2020). The MFN Model tests paying comparable amounts to the lowest price, adjusted for purchasing power, paid by any country in the Organisation for Economic Co-operation and Development (OECD) that has a Gross Domestic Product (GDP) per capita that is at least 60 percent of the U.S. GDP per capita. The model also tests a single add-on payment per dose and waives beneficiary cost sharing for this payment. The model will operate for seven years, from January 1, 2021, to December 31, 2027.
The public comment period for the MFN Model Interim Final Rule with Comment Period (IFC) ends 60 days after publication of the IFC in the Federal Register.
High drug prices are impacting the wallets of Medicare beneficiaries through increased drug coverage premiums and increased out-of-pocket costs. Increases in drug spending are accelerating at a rate that significantly outpaces the growth in spending on other Medicare Part B services, and prices in the U.S. for most Medicare Part B drugs with the highest Medicare spending far exceed prices in other countries. According to a November 20, 2020 Issue Brief from the Department of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation (ASPE), between 2006 and 2017, Medicare Part B FFS drug spending per enrollee grew at 8.1 percent, more than twice as high as per capita spending on Medicare Part D (3.4 percent) and nearly three times as high as overall retail prescription per capita drug spending (2.9 percent). Spending and enrollment projections by the CMS Office of the Actuary (OACT) for the 2021 President’s Budget suggest that per capita spending on Medicare Part B physician-administered drugs and separately-payable hospital outpatient drugs will grow at a very similar annual rate of 8 percent between 2020 and 2027, before consideration of any COVID-19 pandemic impacts. Overall, Medicare beneficiaries and the Medicare program are bearing unnecessary, potentially avoidable costs for Medicare Part B drugs.
The MFN Model is a mandatory, nationwide model that tests whether more closely aligning payment for Medicare Part B drugs with international prices and removing incentives to use higher-cost drugs can control unsustainable growth in Medicare Part B spending without adversely affecting quality of care for beneficiaries. The design of the MFN Model includes several key elements:
1. Model Drug Payment:
- MFN Price: Instead of paying solely based on manufacturers’ average sales price (ASP), Medicare will pay based on a blending formula that includes the lowest adjusted international price, (the “MFN Price”) for the drug, which will be based on the lowest GDP-adjusted price paid by an OECD member country with a GDP per capita (based on purchasing power parity) that is at least 60 percent of the U.S. GDP per capita, and the ASP.
- Phase-in over 4 years: The MFN Price will be phased-in over the first 4 years of the 7-year model, phasing in 25 percent per year for years 1-4, and will be 100 percent of the MFN Price for years 4-7. For example, for the first year the phase-in calculation will use 75 percent of the ASP and 25 percent of the MFN Price. In years 4-7, the MFN Price will be fully phased-in. However, CMS will accelerate the blending formula for a drug in years 1-4, if U.S. prices rise faster than inflation and the MFN Price.
- Will not exceed ASP: To lower what beneficiaries pay, the formula will not allow the model payment amount for a drug (before the per-dose add-on) to exceed the ASP.
2. Alternative to ASP Add-on Payments: The current add-on payment based on 6 percent of ASP for the individual drug will be replaced with a flat payment per dose that is uniform for all included drugs in the MFN Model. The per-dose add-on was calculated using 6.1224 percent of 2019 historic spending for the cohort of drugs included in the first year of the model. CMS bumped up the 6 percent add-on from 2019, to equal 6 percent post-sequestration prior to calculating the per-dose add-on and applying an inflationary factor for the model start and quarterly thereafter.
3. MFN Participants in a Mandatory, Nationwide Model: The MFN Model is a mandatory, nationwide model that requires participation from Medicare-participating providers and suppliers that receive separate Medicare Part B fee-for-service payment for the model’s included drugs, with certain exceptions.
MFN Model Participants
MFN participants include Medicare-participating physicians, non-physician practitioners, supplier groups (such as group practices), hospital outpatient departments (HOPDs) including 340B covered entities, ambulatory surgical centers (ASCs), and other providers and suppliers that receive separate Medicare Part B fee-for-service payment for the model’s included drugs, with certain exceptions noted below. Model participation is mandatory for the included providers and suppliers in all states and the U.S. territories.
Certain types of hospitals and clinics will not participate in the model (such as cancer hospitals, children’s hospitals, critical access hospitals, rural health clinics, federally qualified health centers, and Indian Health Service facilities). Participants in certain other Innovation Center models testing fully capitated or global payment for outpatient hospital services for Medicare FFS beneficiaries, including Medicare Part B drugs, are excluded for the first and second quarters of performance year 1 and will continue to be excluded from the MFN Model thereafter as long as those models incorporate savings on Medicare Part B drug spending under the MFN Model.
The MFN Model focuses on a set of approximately 50 Medicare Part B drugs that encompass a high percentage of Medicare Part B drug spending. CMS identified the included drugs for the first year based on annual Medicare Part B spending in 2019 after excluding certain claims (for example, claims for drugs used at home), and excluding certain types of drugs (such as certain vaccines, oral drugs, multiple source drugs, intravenous immune globulin products, and drugs for which there is an Emergency Use Authorization (EUA) or approval by the Food and Drug Administration (FDA) to treat patients with suspected or confirmed coronavirus disease 2019 (COVID-19)). CMS will add drugs to the model annually to include drugs that rise to be among the top 50 drugs based on updated annual Medicare Part B spending, after applying certain exclusions. Drugs already included in the model will remain in the model, with limited exceptions.
Quality Measures and Evaluation
The MFN Model will use a survey-based quality measure to monitor beneficiaries’ experience of care during the model, and CMS will conduct a variety of analyses to monitor access to the included drugs and assess early effects of the model. CMS will also conduct a model evaluation. In order to effectively evaluate a nationwide, mandatory model, CMS will employ an evaluation design that does not require an independent comparison group to establish the counterfactual (what would have happened in the absence of the MFN Model).
Beneficiaries will fully maintain their choice of providers and treatments. Beneficiary cost-sharing is waived for the per-dose add-on amount, further reducing what beneficiaries will pay for the included drugs beyond expected reductions in cost-sharing as drug payments decline to align with the lowest adjusted international price. In addition, CMS will provide additional beneficiary protections such as enhanced monitoring and Medicare Beneficiary Ombudsman supports.
The MFN Model includes a financial hardship exemption for certain MFN participants whose revenue is significantly affected by the MFN Model.
- MFN Model Rule (PDF)
- MFN Model Fact Sheet
- MFN Model Press Release
- MFN Model Supplemental Documentation (PDF)
- Issue Brief - Medicare FFS Part B and International Drug Prices: A Comparison of the Top 50 Drugs
- Issue Brief - Medicare Part B Drugs: Trends in Spending and Utilization, 2006-2017
Regulations and Notices
- MFN Model Rule (PDF)
- October 2018 ANPRM document (PDF)
- Executive Order 13947: Lowering Drug Prices by Putting America First
- Executive Order 13948: Lowering Drug Prices by Putting America First
Technical documents, including the MFN Drug Payment Amount and the alternative add-on payment amount, will be posted on this website and updated on a quarterly basis.
For questions regarding the MFN Model, please email: MFN@cms.hhs.gov.