CMS issues final rule to create new VBP payment methods for prescription drugs for therapies based on patient outcomes

Dec. 22, 2020

The Centers for Medicare & Medicaid Services (CMS) announced it has finalized regulatory changes to modernize Medicaid prescription drug purchasing and propel payment innovation by providing states, private payers and manufacturers more flexibility to enter into value-based purchasing (VBP) arrangements for prescription drugs.

By law, state Medicaid agencies are entitled to manufacturer rebates for the prescription drugs provided to Medicaid beneficiaries, which is operationalized by drug manufacturers reporting their “best price” to the CMS for brand name drugs and providing rebates to the federal and state governments under the Medicaid Drug Rebate Program (MDRP). Many insurers are experimenting with value-based payment approaches due to the proliferation of new therapies coming to market today that fight disease in an entirely new way, which could not have been imagined at the start of the MDRP 30 years ago. The potentially transformative impact of these new therapies has prompted insurers, including Medicaid, to rethink innovative payment approaches.

Under current regulations, prescription drug manufacturers face challenges accounting for VBP arrangements in their Medicaid best price reporting to the CMS. This has the unintended consequence of hindering providers, insurers and prescription drug manufacturers in their efforts to develop innovative payment models for new drug therapies and other innovative treatments. Current regulations also discourage payers and manufacturers from designing new payment arrangements based on the value their product may provide.

With the new flexibilities under this final rule, manufacturers will be more willing to negotiate with payers, including Medicaid, with drug pricing being driven by the value of their drug to the individual patient. This is significant, especially in the era of new genetic-based treatments which may initially be expensive, yet in the long run offer significant value to the patient and payer. Payers will be able to negotiate prices with manufacturers for these genetic-based treatments based upon outcomes and evidence-based measures such as reduced hospitalizations, lab visits, and physician office visits, ensuring that if such measures fail to support the value of a drug, the payer is not held accountable for the full price.

The final rule codifies a broad definition of VBP, which can better align pricing and payment to observed or expected evidence and/or outcomes-based measures in a targeted population. The final rule also allows manufacturers to report multiple best prices instead of a single best price when offering their VBP arrangements to all states. By making these changes, effective in January 2022, the CMS hopes to encourage VBP arrangements and negotiations to help make new, innovative therapies more available to all patients. As a result, it is estimated that these new VBP approaches could save up to $228 million in Federal and state dollars through the year 2025.

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. When payers are positioned to be stronger negotiators with drug manufacturers, Medicaid beneficiaries will benefit from better access to prescription medications.

In addition to furthering value-based payment, this final rule also furthers the Trump Administration’s efforts to combat the opioid crisis. The changes that we are finalizing implement provisions under the Substance Use-Disorder Prevention that Promotes Opioid Recovery and Treatment (SUPPORT) for Patients and Communities Act (Pub. L. 115-127), and under the existing Medicaid drug utilization review program, to promote safe prescribing of opioids and other medications through state Medicaid Drug Utilization Review (DUR) programs, which is essential to prevent and reduce opioid misuse and abuse. For example, we are finalizing minimum standards that will enhance states’ ability to help identify inappropriate prescribing of opioids if a beneficiary is already receiving medication-assisted treatment for a substance use disorder (SUD).

The regulation also finalizes a regulatory definition of a line extension, which will become effective on Jan. 1, 2022 for the purposes of the alternative rebate calculation under the Medicaid Drug Rebate Program. Manufacturers of line extension drugs are required to make such a calculation on these drugs under section 1927(c)(2)(C) of the Social Security Act. The final definition will create incentives for manufacturers to continue to bring new innovative therapies to market, but protect the Medicaid program from excessive manufacturer inflation on some older drugs. It is estimated that these new final policies clarifying the definition of line extension drugs could produce savings of $2.3 billion through the year 2025 in the form of additional manufacturer rebates to states.

In addition, the final rule protects patients by clarifying requirements that help to ensure that cost sharing assistance, including copayment assistance cards, has the effect of lowering the out-of-pocket costs for patients as intended. The new rules make clear that if the discounts are not benefiting the patient and instead lower the costs for health insurance companies and their pharmacy benefit managers (PBMs), they must be counted in drug manufacturers’ reporting to the CMS for Medicaid rebate purposes, as required by law.

Drug manufacturers are generally required to report an Average Manufacturer Price (AMP) as well as their “best price,” accounting for any discounts or rebates provided to such entities as health plans and PBMs. 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. The CMS is delaying the effective date of this policy until Jan. 1, 2023 to give manufacturers and payers time to make any necessary changes to their patient assistance programs and reporting mechanisms to help ensure that these discounts are accounted for appropriately. Further instructions regarding those provisions whose effective dates will be delayed are described in the final regulation.

CMS has the release.

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