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AHA condemns most favored nation model and asks CMS to withdraw it


In a letter sent to the Centers for Medicare and Medicaid Services, the American Hospital Association called on Acting Administrator Elizabeth Richter to withdraw and replace the most favored nation model interim final rule.

While the AHA supports taking actions to stop the rising cost of drugs in the U.S., the hospital advocacy group called the most favored nation model unlawful and said the law puts patients and hospitals at risk.

“Instead of directly tackling the skyrocketing cost of drugs, this rule puts hospitals in the untenable position of having to divert resources from other patient care simply to buy the drug therapies they need for their patients,” the letter said. “And instead of enacting thoughtful policies that attempt to lower drug prices, this rule puts patients at risk.”

The rule attempts to lower prescription drug costs by paying no more for Medicare Part B drugs and biologicals than the lowest price the drug manufacturers receive in other similar countries. It would create a mandatory, seven-year payment model for the 50 highest-cost drugs and biologics in Medicare Part B.

It replaces the existing reimbursement formula that adds a 6{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca} administration fee to the average sales price of the drug with a new reimbursement system based on international pricing information from 22 different countries.

Providers would instead be reimbursed the “most favored nation” price for the drug plus a fixed payment to cover the cost of procuring, storing, handling and administering these therapies.


The letter charged CMS with acting unlawfully when it didn’t provide notice or ample opportunity for comment before adopting the model. The administration used the pandemic as a reason to forgo the notice and comment period, according to AHA.

“High drug prices do not constitute good cause to eschew notice and comment for many reasons including: CMS was aware of high drug costs for years and failed to act; the agency has contemplated taking action to link Part B drug payments to international prices since 2018; and an agency’s self-imposed delay cannot support a finding of good cause,” the letter said.

The public comment period for the interim final rule ended on January 26.

Beyond the legal concerns AHA has with the model, it says the rule will not lower drug prices and patient out-of-pocket spending. Rather, it says the rule “abdicates Medicare’s responsibility for achieving these goals, putting it entirely on the shoulders of hospitals and other providers, and harming beneficiaries in the process.”

Because the model lowers Medicare’s reimbursement rates for some Part B drugs, CMS recommends that hospitals and other providers purchase the drugs at lower prices, something that would require re-negotiating contracts.

“However, this is not realistic,” AHA said in the letter. “Hospitals will not be able to negotiate, and manufacturers will not allow them to negotiate, a 65{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca} discount in drug prices. As such, it will be difficult to impossible for hospitals to obtain these drugs at or below the MFN rate.”

The lower reimbursement rates also pose threats to hospitals already under financial constraints. Many hospitals’ revenues, especially those in rural or underserved communities, rely on the Part B reimbursements, according to AHA.

Under the new model, reimbursement rates are based on the lowest drug prices available in one of almost two dozen other countries. Based on CMS estimates, the model’s prices are on average 65{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca} less than the average sales price.

Therefore, hospitals that are unable to negotiate lower drug prices themselves will still be purchasing drugs at the average sales price, yet will be reimbursed at a “significantly lower amount,” according to AHA.

In addition to raising concerns with the most favored nation model, AHA touched on strategies deployed by other agencies to lower drug prices. It applauded the Food and Drug Administration’s work in placing more generic drugs and biosimilar products on the market and urged the Department of Health and Human Services to more closely regulate anti-competitive practices of drug manufacturers.


The rule became final under the Trump Administration.

Since it was posted, the rule has been met with pushback from AHA and other advocacy organizations.

A group of organizations, including the Pharmaceutical Research and Manufacturers of America, filed an injunction to stop it and were granted a temporary injunction by Judge Catherine Blake of the U.S. District Court for the District of Maryland. The temporary restraining order lasted through January 20.

Following that ruling, Judge Vince Chhabria of the U.S. District Court for the Northern District of California submitted a preliminary injunction prohibiting CMS from implementing the rule based on a failure to follow notice and comment procedures under the Administrative Procedure Act. His order halts the rule from moving forward pending completion of the notice and comment process. 

Twitter: @HackettMallory
Email the writer: [email protected]



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