CMS aims to spur value-based payment arrangements between drugmakers and insurers, including Medicaid

• A proposed rule would allow voluntary, multiyear contracts to tie drug payments to clinical outcomes.
• Such arrangements could replace health plans’ use of drug tiering and prior authorization.
• Health plans welcomed the changes as potentially helping to spur value-based payment arrangements.

A proposed federal rule aims to lower administrative burdens and kick-start value-based payment arrangements for pharmaceuticals in Medicaid programs and commercial health plans.

This week’s proposed rule from CMS would tweak federal rules that some see as a barrier to widespread adoption of value-based payments (VBPs) for drugs based on their efficacy.

The proposed rule “doesn’t necessarily guarantee low prices, but what it does do is it provides a tool in the toolbox for plans to negotiate with manufacturers,” Seema Verma, administrator of CMS, said on a media call.

Tying drug prices to outcomes also should supplement outcomes data collected by the Food and Drug Administration, Verma said.

Provisions of the proposed rule include:

• Changing how manufacturers should calculate the average manufacturer price (AMP) of a brand-name drug when there is also a generic
• Allowing manufacturers to report multiple “best prices” for a drug if the prices are tied to a VBP arrangement
• Changing whether manufacturers should include the value of their patient assistance programs in the calculation of best price, including when assistance programs are impacted by pharmacy benefit managers’ accumulator programs
• Changing state and manufacturer reporting requirements to the Medicaid Drug Rebate Program

The use of multiple “best prices” aims to facilitate tying prices to different clinical endpoints, Verma said. It also would allow best prices in VBP arrangements to include discounted prices along with list prices.

Savings possible using outcomes-based arrangements

Verma said VBP arrangements would create a cost-control alternative to health plan measures, such as step therapy or prior authorization, that have drawn provider concerns. Health plans also could use tie the drug price to costs, such as costs stemming from reductions in subsequent hospitalizations, she said.

However, once the regulatory changes are made, it will be up to plans and states to implement them. Verma said some already had approached the administration seeking such changes.

“This is a voluntary program, so if it is going to create administrative difficulties for a plan, they may choose not to engage in this type of agreement,” Verma said.

Justine Handelman, senior vice president in the Office of Policy and Representation for the Blue Cross Blue Shield Association, said BCBSA was still reviewing the rule, but she was “pleased to see CMS moving in this direction.

“Our goal is to ensure that patients can access advanced therapies and treatments, and we believe that exploring new ways to pay for these medications, which takes into account their effectiveness and value, is a promising approach,” Handelman said in a statement to HFMA.

Kip Piper, who advises states on Medicaid, said manufacturers and Medicaid policy experts have been asking CMS to allow indication-based best prices “for years.”

“It’s a no-brainer, has always been permitted under the statute, and is necessary for Medicaid and the overall drug industry to move away from the rigid, unit-price model that ignores clinical uses,” Piper said.

Such arrangements already are in use in eight states’ Medicaid programs.

“The proliferation of these type of value-based arrangements in the commercial market will also extend to Medicaid, so that Medicaid agencies aren’t in the situation of having to negotiate these deals; they can see one that is already there and essentially come into that one,” Verma said.

High-cost drugs could become more affordable

VBP arrangements may especially help improve the affordability of the newest, highest-cost drugs, Verma said.

Although CMS did not estimate the rule’s potential savings or costs for Medicaid programs, “What a value-based arrangement might do is say, ‘If it works, you’re going to pay the full million dollars and if it doesn’t work, maybe you are only paying $100,000,” Verma said. “So, there is potential savings to the Medicaid program.”

Piper said the proposed changes will encourage more states and manufacturers to consider value-based pricing arrangements, particularly for high-cost specialty drugs and biologics such as gene and cell therapies.

“Uptake has slowed because of federal policy uncertainties and state administrative costs,” Piper said.  “It’s always cheaper administratively for a state to manage unit-price-based supplemental rebate systems.  The costs of managing evidence- or outcomes-based pricing are higher, but the long-term benefits for patients and taxpayers are significant, especially for high-cost therapies and orphan drugs.”

The rule also could lower drug pricing by using outcomes-based payments to track outcomes over multiple years, Verma said.