Cracking the MFP Code: What to Optimize for in MFP Effectuation Models

In our previous blog, we explored the two models for effectuating the IRA’s Max Fair Price (MFP): the On-Invoice Model (prospective) and the Post-Utilization Model (retrospective). To recap, the On-Invoice Discount Model offers MFP as a discounted price for ordering a selected product without knowing who the product will be given to. The Post-Utilization Model effectuates a refund after the dispensing entity shows the product was dispensed to an eligible patient. The two versions of the Post-Utilization Model are the Direct Discount Model and the Rebate Model. For a deeper dive into these models, check out our previous blog. Given the complexities involved, we established addressing the cross-program challenges in an On-Invoice Discount model is nearly impossible. 

Now, let’s shift our focus to the Post-Utilization Model and examine what an effective model looks like. Grasping the nuances of these models is critical for successfully navigating MFP in today’s evolving drug landscape.

Key Considerations for Post-utilization Models:

When evaluating the two versions of the post-utilization model, it’s essential to consider several key factors that will impact their overall effectiveness. 

• The Standard Drug Rebate Amount (SDRA): This amount is determined based on the Wholesale Acquisition Cost (WAC). So, it’s important to assess whether dispensers can purchase at the WAC and to identify the other contracted prices available in the market.
• Cross-Program Interactions: Monitoring for inappropriate discounts across various programs is necessary.
• Manufacturer Responsibilities: Manufacturers are responsible for calculating the appropriate amount to effectuate the Maximum Fair Price (MFP) in a timely manner, so having the available data insights to perform this is crucial.

What’s the Ideal Solution?

1. User-friendly: It must be easy to use for both manufacturers and dispensers, ensuring transparency for accurate administration of the MFP program between the Medicare Translator Facilitator Data Module (MTF DM) claim information and dispenser purchasing.
2. Technologically Capable: It must have the ability to integrate various data points into manufacturers' existing systems while accurately managing MTF DM claim information and dispenser purchasing. Additionally, it has to be able to calculate refund amounts based on Average Acquisition Cost (AAC) and MFP refunds.
3. Quick Payments: It should facilitate quick payments, within the 14-day window, to alleviate cash flow concerns for dispensers.
4. Cross-Program Compatible: Compatibility with programs like 340B and Medicaid is essential for addressing CPI penalties and resolving disputes in the MDRP.

The interplay of these factors calls for a comprehensive solution. Ultimately, the only approach that incorporates all of these elements, particularly quick payments, is the direct discount model. 

Cash Flow Considerations and the Direct Discount Model

A major concern for both the Centers for Medicare & Medicaid Services (CMS) and relevant entities regarding the various MFP effectuation models is the challenge of managing cash flow. In section 90.2.1 of the guidance, CMS mandates manufacturers to devise a plan to address potential cash flow issues, particularly for cash-strapped entities. As a result, it is crucial to account for cash flow dynamics and the associated challenges when evaluating the different MFP effectuation models.

The Direct Discount Model effectuates the discount after the product is dispensed and usually before the invoice due date. This approach enables quick payments, within the 14-day payment window, and provides flexibility for factors such as payment timing or payment terms. For example, if a covered entity dispenses a unit and submits a Max Fair Price eligible claim on the same day, they could receive payment within 24 hours of dispensing the product. This model gives manufacturers the flexibility to configure payment terms in a way that accommodates the needs of cash-strapped entities and ensures their cash flow is not impacted (and in many cases, improves their cash flow).

In our next blog, we will explore the role of the Medicare Transaction Facilitator (MTF) in managing the exchange of data and payments and how the different MFP effectuation models interact with the MTF. For more information, check out our most recent webinar "Cracking the MFP Code."