National Federation of Independent Business Issues Public Comment on Centers for Medicare & Medicaid Services Rule

WASHINGTON, Dec. 30 -- David S. Addington, executive vice president and general counsel at the National Federation of Independent Business, has issued a public comment on the Centers for Medicare and Medicaid Services rule entitled "Most Favored Nation Model". The comment was written on Dec. 7, 2020, and posted on Dec. 23, 2020:

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This letter presents comments of the National Federation of Independent Business (NFIB) on the Department of Health and Human Services (HHS) interim final rule titled "Most Favored Nation (MFN) Model" and published in the Federal Register of November 27, 2020. Per HHS, the MFN Model will conduct a seven-year test of "whether more closely aligning payment for Medicare Part B drugs and biologicals ... 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."/1

HHS previously committed "to expanding Americans' access to high-quality, safe and effective, affordable medicines," and NFIB expressed its appreciation for that commitment./2

But NFIB recommends that the federal government carry out that commitment in a manner consistent with a free market, accompanied by effective antitrust law enforcement, rather than continuing government price controls with the MFN Model.

NFIB is an incorporated nonprofit association representing small and independent business members across America. NFIB protects and advances the ability of Americans to own, operate, and grow their businesses and ensures that governments of the United States and the fifty states hear the voice of small business as they formulate public policies. Small businesses have a substantial interest in access to affordable, flexible, and predictable health care, including affordable prices for medicines essential to the health of small business owners and employees.

The HHS Preamble to the final rule, referring to section 1847A of the Social Security Act,/3 states:

Medicare pays substantially more than other countries for many of the highest-cost Medicare Part B drugs that beneficiaries receive in an outpatient setting for which Medicare Part B allows separate payment. In many instances. Medicare pays more than twice as much for certain drugs as other countries do. This is because Medicare generally establishes the payment for separately payable Medicare Part B drugs using the methodology in section 1847A of the Act. In most cases, this means payment is based on the Average Sales Price (ASP) plus a statutorily mandated 6 percent add-on. Under this methodology, the Medicare program does not get the benefit of the substantial discounts provided in other countries, because ASP is calculated using only the prices that manufacturers charge to certain U.S.-based purchasers. ASP-based payments may encourage the use of more expensive drugs because the dollar amount of the 6 percent add-on portion is larger for drugs with higher ASPs, [footnotes omitted]/4

Thus, HHS identifies the government's own price controls (imposed under section 1847A of the Social Security Act) as the reason drugs are so expensive for the Medicare program. The government then proposes a "solution" to the problem: more government price controls. The Preamble states:

The MFN Model will--

* Calculate the payment amount for MFN Model drugs based on a price that reflects the lowest per capita Gross Domestic Product-adjusted (GDP adjusted) price of any non-U.S. member country of the Organisation for Economic Co-operation and Development (OECD) with a GDP per capita that is at least sixty percent of the U.S. GDP per capita, based on available data;

* Make an alternative add-on payment for MFN Model drugs that will remove or reduce the financial incentive to prescribe higher-cost drugs more frequently; and

* Reduce beneficiary cost sharing on MFN Model drugs, [footnote omitted]/5

HHS proposes to test the MFN model for "7 performance years, from January 1, 2021 to December 30, 2027."/6

HHS should stop searching for an alternative to the free market that simulates the free market and instead allow the free market itself to work. The free market will set drug prices according to supply and demand rather than according to price-inflating federal statutes if Congress repeals those statutes. In rare cases, such as orphan drugs or emergency vaccines, in which pressing humanitarian needs compel government intervention in an otherwise free market for drugs, the government should pay through the market (such as by incentives to producers or reimbursements to consumers) rather than imposing price controls. Therefore, HHS should prepare and submit to Congress legislation the President judges necessary and expedient to repeal the provisions of section 1847A of the Social Security Act and any other federal statutes that prevent free market production, distribution, and pricing of safe and effective drugs. To the extent companies involved in such production and distribution have market power they can misuse in setting prices, the solution lies with enforcement of the federal antitrust laws and not with imposition of price controls.

If HHS is correct that section 1847A caused the price hikes, congressional repeal of the offending provisions would allow the free market generally to push down drug prices, for the benefit of drug consumers, including small businesses and their employees. As a significant side benefit of reliance on a free market with effective antitrust enforcement, HHS should be able to reduce substantially the size of its staff devoted to implementing drug price controls, a reduction that would yield significant savings for taxpayers.

NFIB appreciates the steady efforts of HHS in recent years to facilitate access to affordable, flexible, and predictable health care for small businesses and their employees, such as through association health plans and short-term limited duration health insurance. A market-based initiative to reduce drug prices would be equally welcome.

Sincerely,

David S. Addington

Executive Vice President and General Counsel

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Footnotes:

1/ 85 Fed. Reg. at 76180, col. 1.

2/ 84 Fed. Reg. at 70799, col. 3. NFIB Letter to Secretary of HHS, January 10, 2020.

3/ 42 USC Sec. 1395w-3a

4/ 85 Fed. Reg. at 76180, col. 3. to 76181, col 1.

5/ 85 Fed. Reg. at 76181, col. 2.

6/ 85 Fed. Reg. at 76181, col. 1.

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The rule can be viewed at: https://www.regulations.gov/document?D=CMS-2018-0132-2750

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