U.S. Chamber Urges CMS to Drop Arbitrary MFN Pricing Models

Earlier today, the U.S. Chamber of Commerce published a blog post following up to a comment submitted by the Chamber late last week to the Centers for Medicare & Medicaid Services (CMS) urging the agency to rescind proposed price controls that would require pharmaceutical companies to offer drugs to Medicare on a “most-favored-nation” basis. The Chamber argues that applying foreign pricing controls on U.S. drug sales would have a deleterious impact on both American innovation and patient access to lifesaving treatments, and that such measures exceed CMS’ authority established by its governing statute.

The most-favored-nation (MFN) pricing model for Medicare patients was at the center of an executive order issued by President Trump last May, which called upon pharmaceutical companies to sell drugs to Medicaid patients at the lowest price that it offers that drug to patients anywhere in the world. The U.S. Chamber challenged the policy in an early November blog post, citing statistics from economists showing that MFN pricing could sacrifice 2 million American jobs in the biopharma sector, which as a whole could lose $2.4 trillion in revenue under the policy.

Strict Pricing Models Eliminate Free Market Pricing That Sustains Global Drug Innovation

The U.S. Chamber’s recent comments come just before the public comment period ended today for new payment models proposed in late December by CMS. Under those rules, rebates for drugs covered under Medicare Part B would be calculated under the new Global Benchmark for Efficient Drug Pricing (GLOBE) Model, which identifies a benchmark price based on the lowest international price for the drug among economically comparative countries. For drugs covered under Medicare Part D, as well as some Medicare Part B drugs that can substitute those covered under Part D, the Guarding U.S. Medicare Against Rising Drug Costs (GUARD) Model would identify price benchmarks based upon the lowest country-level average price in absolute terms.

The GLOBE and GUARD models proposed by CMS begin from the misguided premise that foreign prices are set under market conditions providing an appropriate reference point for U.S. policy, the U.S. Chamber argues. The American business association points out that foreign governments use centralized price setting mechanisms that deny intellectual property protections in favor of health technology assessments that govern whether certain medicines are reimbursed. Importing foreign price controls that set costs so arbitrarily exacerbates the issue of international free riding by eliminating the market-based pricing currently sustaining global pharmaceutical innovation.

Tying the U.S. to countries with weaker and even declining economies, as many of those nations impose the strictest price controls, would put our nation on par with others where patients lack access to new medicines. The U.S. Chamber’s comment cites statistics indicating that only 24% of new medicines are reimbursed and available to Australian patients and only 21% for Canadian patients, compared to 85% of new medicines being reimbursed and available to U.S. patients. Even when new medicines are available, price controls can still contribute to substantial delays in patient care. Though CMS estimates that the GLOBE and GUARD models would achieve $26 billion in total cost savings, the lack of any meaningful analysis on potential impacts to the drug development pipeline or the availability of existing drugs is highly problematic, especially as CMS has acknowledged that GUARD is not expected to reduce out-of-pocket costs for Part B or Part D beneficiaries.

New Pricing Models Displacing Congressional Formulas Raise Non-Delegation Issues

The proposed MFN pricing models would be especially harmful to medical innovation in orphan drugs, the U.S. Chamber urged. Of the 10,000 known diseases affecting less than 200,000 U.S. citizens each year, 95% of those conditions have no current known treatment. Many companies developing orphan drugs to treat these illnesses are small and emerging biopharma companies that invest at least half of their annual budgets in research & development. Of particular issue among CMS’ proposed frameworks is GUARD’s minimum spend threshold of $69 million, which the U.S. Chamber called unrealistically low, capturing virtually any drugmaker with a commercially viable drug. Over a 20-year period, MFN policies like GLOBE and GUARD would reduce drugs developed by small companies by 90%, reduce new drug approvals by up to 342 treatments, cause up to 326 million life years lost and eliminate up to 500,000 jobs in America’s biopharma industry, according to economist forecasts cited by the U.S. Chamber.

Under Section 1115(a) of the Social Security Act, CMS’ Center for Medicare and Medicaid Innovation (CMMI) is authorized to “test innovative payment and service delivery models,” statutory authority cited by CMS when announcing the GLOBE and GUARD models. Far from being a test, the U.S. Chamber argues that the MFN pricing models are mandatory mechanisms achieving a predetermined outcome and include no process for evaluating the models’ success. Further, statutory authority to select payment models requires evidence that the model addresses deficits in care leading to poor clinical outcomes or avoidable expenditures, which CMS’ proposals do not address beyond a random selection of zip codes across the U.S. under the premise that care is deficient for all Medicare beneficiaries.

The U.S. Chamber further argues that CMS’ proposed payment models raise major questions requiring Congressional authorization. Given that Congress has set formula for Medicare reimbursements by statute, the U.S. Chamber highlighted serious non-delegation questions raised by the interpretation of a single statutory provision allowing CMMI to displace those formulae on drugs representing about half of Medicare Part B and Part D spending. Implementing strict pricing controls preventing drugmakers from recouping their R&D investment also raises constitutional issues under the Fifth Amendment’s Due Process and Takings Clauses, the U.S. Chamber contended.

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