CMS Issues Rules to Promote Value-Based Contracting, Pay for High-Cost Therapies in Medicaid

June 18, 2020

Administrator Seema Verma said the proposal would create opportunities "for drug manufacturers to have skin in the game through payment arrangements that challenge them to put their money where their mouth is."

CMS yesterday proposed rules to create flexibility for value-based contracting in Medicaid, which officials said would allow the outcomes-based pricing seen in commercial plans to flourish in public plans and, hopefully, give poor patients greater access to the life-changing therapies.

The proposal also calls for establishing minimum standards in Medicaid state drug utilization review (DUR), which are designed to reduce opioid-related fraud and abuse.

The notice seeks comment on series of proposals, the most important of which would tackle longstanding barriers to creative pricing instruments, including long-term financing of costly gene therapies, which experts say are needed if the poor are to have equal access to the most innovative treatments. Comments are due July 19, 2020.

In particular, CMS addressed a rule created years ago to ensure that Medicaid received the most favorable deal available for prescription costs, the so-called “Medicaid Best Price” rule. While reasonable for its time, the rule prevented modern value-based transactions in which manufacturers are paid on a sliding scale, based on whether a costly therapy works—including instances when the drug maker isn’t paid at all.

Such contracts create incentives on all sides to develop methods, including genetic testing, to ensure that expensive therapies are only given to those patients in whom they have a high chance of success, thus holding down overall spending in a time of unprecedented innovation.

“CMS’s rules for ensuring that Medicaid receives the lowest price available for prescription drugs have not been updated in 30 years and are blocking the opportunity for markets to create innovative payment models,” CMS Administrator Seema Verma said in a statement. “By modernizing our rules, we are creating opportunities for drug manufacturers to have skin in the game through payment arrangements that challenge them to put their money where their mouth is.”

In a briefing with reporters, Verma explained that under a value-based pricing (VBP) model, pricing for a gene therapy for cancer could be tied to how long a patient lived, while pricing for innovative diabetes treatments could be tied to reductions in glycated hemoglobin. Other factors that may be included in value-based contracts are a drug’s level of toxicity, including whether the patient ended up needing hospitalization for side effects. Such steps can discourage plans from simply forcing patients to jump through barriers such as traditional prior authorization to gain access, CMS said in a fact sheet.

“Basing payment on the effectiveness of a given therapy can foster innovation in the treatments that are most impactful to patients, while reducing overall healthcare spending and hospital visits,” the fact sheet said.

Also, CMS said the shift would boost incentives to collect and share evidence on how well therapies work.

The proposed rulemaking also seeks changes to give states more power to identify or limit inappropriate opioid prescribing in their Medicaid programs, if patients are already receiving treatment for a substance use disorder.

Also, CMS seeks changes in how manufacturers calculate the average manufacturer price of a branded drug when an authorized generic is available, and how patient assistance programs would be included in the calculation of “best price.” CMS also seeks to address the interaction between patient assistance programs and pharmacy benefit manager accumulator programs.

Mark Trusheim, MSc, strategic director of NEWDIGS, a program of Massachusetts Institute of Technology, commented on the aspects of the plan that align with the MIT FoCUS project, which has convened stakeholder sessions to develop pricing models for new therapies.

He said CMS has taken steps to create performance levels, or outcomes tranches, which pool results and avoid the phenomenon of a single outlier setting the price for an entire state Medicaid program. In low population states especially, it’s likely that only a single patient might be prescribed a high-cost gene therapy for a condition in a given, and a single poor performance should not set the market.

Trusheim said CMS has also granted exceptions so that drug manufacturer reporting requirements can extend beyond the current limit of 3 years. However, he said, while the proposal mentions “pay-over-time” arrangements, it does so within the content of manufacturers’ reporting requirement extending beyond 3 years.

The proposed rule states that many value-based pricing arrangements, “or pay-over-time models may be better suited for periods longer than 12 quarters, and manufacturers entering into such agreements may need to adjust AMPs and best prices beyond the 12 quarters because evidence-based or outcomes-based measures are being measured beyond a period of 12 quarters,” or a final installment payment occurs after this time.

However, Trusheim said the proposal does not appear to address one other problem that MIT FoCUS identified: an initial payment being interpreted as total payment in a performance- or annuity-based model.

He identified several elements of importance for state Medicaid programs, including:

  • The proposal appears to allow capitated payments for therapies, which would permit subscription-based models such as the one pursued in Louisiana for direct-acting antivirals for hepatitis C virus.
  • A State Plan Amendment process must be used to negotiate VBP arrangements that involve a Supplemental Rebate Arrangement.
  • States must report VBP arrangements, naming which drugs, the number of prescriptions, administrative costs and total savings. “They need not report the VBP structure or how the savings were distributed among the outcomes payment levels,” Trusheim said.