CMS finalizes rule to ease value-based arrangements for prescription drugs

Rebecca Pifer | December 22, 2020

The Trump administration on Monday finalized a rule meant to make it easier for state Medicaid programs, commercial insurers and drug manufacturers to enter into value-based arrangements tying prescription drug payments to clinical outcomes.

The rule overhauls existing regulations that stymied value-based payments, CMS said, in a bid to expand access to new, expensive drugs, such as gene therapies. Payers will be able to negotiate prices with drugmakers based on outcomes and evidence-based measures like reduced hospitalizations or lab visits, and won’t be accountable for the full price if the value of the drug isn’t proven.

The changes are effective in January 2022. CMS estimates the value-based arrangements emerging in the wake of the final rule could save federal and state governments up to $228 million through 2025.

Dive Insight:
State Medicaid agencies are entitled to manufacturer rebates for prescription drugs given to beneficiaries in the safety-net program, based off of manufacturers reporting their “best price” to CMS for brand-name drugs. The best price is the lowest net price offered by a drugmaker. Drugmakers have to match this price in drugs they sell to Medicaid, or pay a statutory 23.1% rebate.

Typically, drug contracts are tied to the volume of product sold, so the more a product is prescribed, the larger the manufacturer rebate. But increasingly, drugmakers and insurers — including Medicaid — are exploring linking payments for prescription drugs to value, especially given the rise in pricey therapies, though outcomes-based deals remain a small minority of pricing agreements.

Manufacturers have complained that only reporting one best price makes it hard for them to structure deals with payers lowering a drug’s price depending on outcomes.

Requirements in the three-decade-old Medicaid Drug Rebate Program on rebates and related reporting have thwarted the push to pay based on outcomes, CMS Administrator Seema Verma said in a statement. Monday’s final rule changing the reporting requirements to allow multiple best prices and bundled contracts should make drugmakers more willing to negotiate with payers, CMS said.

Insurers and drugmakers will be able to create bundled contracts, and manufacturers will also be allowed to report multiple best prices when negotiating value-based payment with states, among other changes.

The rule also finalizes a definition of a line extension for the purposes of the alternative rebate calculation in the Medicaid Drug Rebate Program, to protect Medicaid from inflation on some older drugs, CMS said. Regulators excluded combination drugs, therapies combining two or more drugs or linking a drug with a device, from the line extension definition in the rule.

CMS estimates the clarification will result in additional manufacturer rebates to states, saving $2.3 billion through 2025.

The final rule also clarifies some cost-sharing assistance elements in Medicaid to try to make sure they lower out-of-pocket costs for consumers. If discounts don’t benefit the patient and instead just lower costs for payers and pharmacy benefit managers, they need to be counted in drugmakers’ reporting to CMS for rebate purposes, the agency said.

“This change will help ensure that when patients use a copayment assistance card provided by a drug manufacturer, the value is passed through to the patient’s deductible or cost sharing obligations in full, as opposed to offsetting what the health insurance company would have to normally reimburse the pharmacy,” CMS said. The agency is delaying the change until January 2023 to give pharmaceutical companies and insurers more time to adjust.

As a result of the rule, beneficiaries of the safety-net insurance, which covers tens of millions of Americans, should benefit from better access to medications, CMS said.

Industry was critical of the rule’s proposed form released in mid-June.

Hospitals, drugmakers, insurers and Medicaid officials said its implementation timeline was too quick. Some said the rule could result in higher administrative burden for healthcare companies or less copay assistance for commercially insured patients, while pharmaceutical companies warned it could have ripple effects lowering the price they’re allowed to charge hospitals in the 340B drug discount program.

Lowering drug costs has been a key platform for President Donald Trump, though critics say his administration largely hasn’t delivered. Trump continually touted his record on drug pricing, through actions like importing cheaper drugs from Canada, banning rebates paid to pharmacy benefit manufacturers in Medicare and forcing drugmakers to disclose the list prices of drugs in TV ads. Many measures were never implemented, challenged by manufacturers in courts or rolled back following public or partisan backlash.

The final rule also addresses the ongoing opioid crisis, implementing provisions to promote safe prescribing through state Medicaid review programs. For example, it enacts minimum standards to help identify inappropriate opioid prescribing if a patient with substance abuse disorder already receives medication-assisted treatment.

Source: Healthcare Dive