Avalere: Most-favored-nation model won't significantly lower out-of-pocket costs for majority of beneficiaries

Drug prices
A new analysis found that the Department of Health and Human Services' most-favored-nation model won't lead to lower out-of-pocket costs for most Medicare beneficiaries due to supplemental coverage. (Getty/Tero Vesalainen)

A controversial final rule to tie the prices Medicare reimburses for certain drugs to the prices paid overseas likely will not result in major savings for beneficiaries, a new analysis found.

The analysis, released Friday by consulting firm Avalere Health, found that the vast majority of Medicare fee-for-service beneficiaries won’t see any reduction to their out-of-pocket costs from the rule because they already get supplemental coverage.

The Centers for Medicare & Medicaid Services rule, published late last month, creates a seven-year mandatory model that would tie the prices for 50 drugs reimbursed by Medicare Part B to a lower “most-favored-nation” price paid by a foreign country.

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The goal behind the model is to lower drug costs for Medicare beneficiaries, according to the Trump administration.

"By dramatically lowering prices and potentially delivering more than $28 billion in out-of-pocket savings for patients, the Most Favored Nation Model will be the most significant single action any administration has ever taken to lower American drug costs," Department of Health and Human Services (HHS) Secretary Alex Azar said in a statement last month when the rule was released.

But the model likely will not help, because more than 94% of Part B beneficiaries in Medicare fee-for-service who use the drugs already have some type of supplemental coverage. This coverage could be Medigap, Medicaid or employer-sponsored insurance, Avalere said.

The firm estimated that “less than 1% of beneficiaries in Medicare would see reduced [out-of-pocket] costs (in a given year) if the demo were to include the 50 drugs,” according to the analysis.

Avalere looked at Medicare enrollment in 2017 and claims data to identify which beneficiaries received one of the 50 drugs.

The firm noted that the findings are like another analysis it performed in 2018 when the model was first proposed in an advanced notice of proposed rule-making. HHS never issued a proposed rule on the model and bypassed the proposal period to install an interim final rule late last month.

The 2018 analysis, which focused on only 27 drugs, also found that 87% of Part B beneficiaries won’t be impacted by the model because of supplemental coverage.

It also found that less than 1% of seniors in Medicare would see their out-of-pocket costs decline.

The latest 2020 analysis was paid for by the Pharmaceutical Research Manufacturers of America (PhRMA), but Avalere retained editorial control.

PhRMA has been a staunch opponent of the model and has hinted it will sue the Trump administration to overturn it.

Providers have also complained that some practices could shut down if the model goes into effect. Providers that rely heavily on Part B, such as oncology centers, warn that they could be forced to pay more for drugs than what Medicare reimburses if drugmakers don't offer their products at the most-favored-nation price.