CMS Issues Long-Awaited Decisions on MassHealth Prescription Drug Request

It was a busy day for CMS today. After keeping everyone in suspense for months, CMS finally issued its decision on the Massachusetts state Medicaid program waiver request that proposed to limit access to covered outpatient drugs to Medicaid (in Massachusetts, called “MassHealth”) enrollees.  As many observers predicted, CMS did not approve the state’s request.  Notably, however, the CMS response letter provided a pathway for Massachusetts to achieve a substantially similar result.  CMS told the state that the agency “would be willing to consider” alternative approaches.  It remains to be seen whether Massachusetts pursues this flexibility.

At the same time as the agency told Massachusetts “no” (or at least “maybe later”), however, they told Oklahoma “yes.” More specifically, Oklahoma is the first state in the nation to be authorized by CMS to begin to extract supplemental rebates from pharmaceutical manufacturers that agree to participate in value-based purchasing arrangements.  Apart from the Massachusetts and Oklahoma decisions, CMS also issued an important and broader clarification regarding Medicaid coverage of drugs that are approved by the FDA under the accelerated approval pathway.  (As we said, today was a busy day for CMS!)

In today’s blog post, we address all three developments.

First, Massachusetts:  Governor Charlie Baker submitted a request to CMS on September 8, 2017 asking for a significant change in the Medicaid prescription drug rebate program via the Medicaid waiver process.  As a refresher, section 1115 of the Social Security Act allows the Secretary of HHS to waive “any of the requirements” of section 1902 and 1903 of the Medicaid program if the waiver would “promot[e] the objectives” of Medicaid.

One of the requirements of section 1902 is that a state comply with all of the requirements of the Medicaid prescription drug rebate program, including a requirement that a state agree to cover all of the covered outpatient drugs of a pharmaceutical manufacturer that has agreed to pay a rebate that is shared between the state and federal government.  States can adopt utilization management techniques – such as prior authorization – and can even adopt a formulary.  But if a manufacturer’s drug offers a “significant, clinically meaningful therapeutic advantage” compared to other drugs on the formulary, the state has no choice and must cover the drug.

Massachusetts wanted to upend this statutory arrangement.  Instead of essentially covering all drugs, Massachusetts wanted to adopt a policy under which it would only guarantee coverage of one drug per therapeutic category or class.  Under the Massachusetts proposal, MassHealth would leverage its significant purchasing power to extract much higher rebates than it collects under current law from the manufacturer of the one drug that would be guaranteed coverage.  Had the Massachusetts proposal been adopted, it would likely have generated significantly higher rebates, likely explaining the ferocious opposition that it generated from the pharmaceutical and biotechnology industries.

But CMS decided not to approve the Massachusetts request.  Writing to the state Medicaid administrator, CMS explained that the state’s proposal “was not consistent with the[ ] [Medicaid statutory] requirements.”  Notably, however, CMS provided a roadmap to a similar concept.  What CMS has suggested that it would approve – or at least consider – is for the state to forego coverage of outpatient prescription drugs (which, as CMS points out, is an optional Medicaid benefit) under the base statute and instead cover only select drugs via an § 1115 waiver.  That way, CMS told Massachusetts, the state could negotiate directly with manufacturers and develop a closed formulary structure.  In return, the state would have to agree to forego all statutorily-required rebates in anticipation of securing greater rebates under the alternative approach – subject to budget neutrality requirements.

It remains to be seen whether MassHealth (or other states) will accept or further develop this new idea.

The Oklahoma announcement is also significant, although it was not proposed as a waiver request.  Rather, Oklahoma received approval for a Medicaid state plan amendment under which it would negotiate value-based purchasing arrangements with manufacturers of some transformative therapies.  Such payment models might include, for example, additional rebates if agreed-upon clinical outcomes for these therapies were not met.

Under the Medicaid drug rebate statute, state Medicaid plans are generally entitled to the best price for a drug or biotechnology product.  There are some exceptions to best price:  for example, if a manufacturer negotiates a CMS-approved supplemental rebate with a state (in excess of the statutory 23.1%), the supplemental rebate will not re-set best price.  Oklahoma, via its state plan amendment, sought assurance that a value based payment model that was developed via a supplemental rebate would not result in a new best price.

Somewhat surprisingly, this issue has not arisen before.  Oklahoma is the first state in the country to receive this type of assurance from CMS; it is likely that other states will begin to adopt these models given the CMS assurance.

Finally, CMS clarified the treatment of drugs that are approved by the FDA via the accelerated approval pathway.  Accelerated approval is one of the four tools available to the FDA to speed the availability of drugs that treat serious medical conditions.  Under this pathway, the FDA will allow drugs for serious conditions that would fill an unmet medical need to be approved based on a surrogate endpoint – in other words, a marker that is thought to predict a clinical benefit – rather than the achievement of the clinical benefit itself.

CMS acted because there was some question whether a drug approved by the FDA via the accelerated approval pathway can be a “covered outpatient drug” under the Medicaid program.  If it is, then it is subject to rebates and it is subject to mandatory coverage.  CMS today clarified that if a drug is (1) granted accelerated approval; (2) able to meet the definition of “covered outpatient drug”; and (3) used for a medically-accepted indication, then the drug must be covered by Medicaid if the manufacturer has signed a rebate agreement.

Today’s announcements comes as CMS and HHS have embarked on a major initiative to address the costs of prescription drugs in the United States.  Obviously, there will be more to come in the Medicare program, as well as Medicaid, over the next several months as the Administration develops responses to its drug pricing RFI and releases all of its Medicare payment rules for 2019 between now and November 1.  There will be much more to write about this summer and autumn.


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