As my colleague Tom wrote about in a recent post, the Centers for Medicare & Medicaid Services (CMS) has finally responded to a growing chorus of stakeholders that government price reporting requirements, particularly Medicaid Best Price (BP), are stifling innovative value-based contracting arrangements (VBAs). As the proverbial wisdom goes, “nothing changes if nothing changes,” and CMS’ recently finalized proposal to allow manufacturers to report multiple BPs is meant to stimulate innovative changes in contracting for drugs and biologicals.
In this post, we want to take a closer look at the proposal and consider some potential implications in a bit more detail, especially as they relate to state Medicaid programs’ ability to leverage VBAs.
Medicaid Best Price can hinder value-based contracting arrangements in the commercial space.
Avid readers of our blog understand how BP can hinder the development of VBAs because we’ve harped on it quite a bit in the past (here, here, and here). Without belaboring the point too much, the Medicaid BP requirement imposes an obligation on manufacturers that have signed a Medicaid Drug Rebate Program (MDRP) Agreement to report certain pricing information to the federal government, including the manufacturer’s lowest price that it extends to any purchaser in the United States (with a few exceptions), also known as the manufacturer’s BP.
In addition to reporting pricing information, the manufacturer is also required to provide certain rebates to the state Medicaid programs for their “covered outpatient drugs” (a defined term that we don’t need to dive into here). Among those rebate obligations is the requirement to offer Medicaid the BP that was available to any other purchaser in a given quarter. Importantly, it doesn’t matter if the purchaser is a single commercial plan that serves some corner of Maine (one of Tom’s favorite places in the U.S.): if that plan receives the lowest net price from the manufacturer relative to any other purchasers, then the manufacturer must extend the same price to all state Medicaid programs.
The implication of BP for innovative VBAs is probably clear to you now. To use an overly simplified example: Imagine you, a manufacturer who has signed an MDRP Agreement, develop a $1,000,000 gene therapy to treat cancer and are confident that your therapy will have its intended therapeutic effect in 75% of the patients who take it. As a result, you decide to give a few purchasers of your gene therapy (e.g., a health plans in Maine) a “value-based” rebate. Specifically, you agree to provide these health plans with a 75% rebate if one of their patients does not respond to your therapy according to pre-specified clinical outcomes.
Ordinarily, this seems like a pretty optimal outcome from everyone’s perspective. As the manufacturer, you can justify the high price your therapy demands by tying it to the actual outcome patient’s experience. As the Maine health plans, the risk of paying for such an expensive therapy is significantly mitigated by the promise of its therapeutic benefit and a substantial rebate if the outcome is not achieved. And, as the patient, you have access to a potentially life-saving therapy, which should be the ultimate goal of everyone involved.
Regrettably, however, you would not be able to offer that kind of value-based contract to the Maine health plans because, as a signatory to the MDRP subject to the BP requirement, you would be forced to extend the 75% discount to the entire Medicaid program because it represents the BP you have offered to relevant U.S. purchasers. Moreover, Medicaid would be entitled to the 75% rebate regardless of whether the relevant beneficiary met or did not meet the pre-specified clinical outcomes that comprised the contract you entered into with the Maine health plans. As a result of this dynamic, many manufacturers (and other stakeholders) have asked CMS to provide guidance over the years on how they could pursue VBAs without implicating the dramatic consequences associated with triggering the BP requirement. CMS guidance on the topic, however, has been lacking, until now.
CMS will now allow manufacturers to report “multiple” BPs that correspond to VBAs that the manufacturer offers to commercial payers and the Medicaid program.
Under the Final Rule, beginning on January 1, 2022, CMS will allow manufacturers with qualifying VBAs to report multiple BPs for a single dosage form and strength of a covered outpatient drug. This is in contrast to the single BP that manufacturers currently must report. The real kicker? Those BPs tied to a VBA will not necessarily trigger a new BP for the manufacturer in the Medicaid program. To qualify under this multiple BP approach, the manufacturer must offer the VBA to all state Medicaid programs. States, however, are not required to participate in the VBAs.
A VBA as defined in regulation must be “intended to align pricing and/or payments to an observed or expected therapeutic or clinical value in a select population.” Additionally, the definition requires that the cost of the covered outpatient drug be “substantially linked” to either evidence-based measures (i.e. existing evidence of effectiveness and potential value for specific uses of that product) or outcomes-based measures (i.e. the drug’s actual performance in a patient or a population, or reduction in other expenses). More specifically:
- Evidence-based measures must be based on clinical data sets and documented evidence. For instance, documented evidence for an oncology product may show complete remission in 80 percent of a population. Thus, the manufacturer negotiates with the payer and agrees to offer a certain rebate if 80% of the payer’s patients do not achieve complete remission.
- Outcomes-based measures need not be based on documented evidence. For example, in the above example, a manufacturer can agree to rebates depending on whether a particular patient actually responds or not.
Importantly, CMS declined to define what it means for the cost of the drug to be “substantially” tied to evidence-based and/or outcomes-based measures, but stated that manufacturers should document and keep records of how they determined that the cost of a drug is “substantially” tied to selected outcomes, similar to how they make and document “reasonable assumptions” for price reporting.
CMS provides an example of how the BP would be calculated and owed to state Medicaid program (assuming the state agreed to the VBA) under this new multiple BP approach. The calculated BP rebate due to the state using the VBA BP approach would be a function of whether or not the Medicaid rebate is being paid on a unit of a drug dispensed to a Medicaid patient that participated in a VBP, and the level of rebate associated with that patient’s outcome. The BP rebate paid for that patient would only represent the amount of rebate due to the state from the manufacturer for that particular patient, not all patients. Using the example above, you, as the manufacturer, would owe the state Medicaid program a 75% rebate for those patients that do not meet the specified clinical outcomes consistent with the terms of the VBA (which you also offer to the Maine plans). As CMS states, “the rebate would be specific to that patient’s outcome and that price actually realized by the manufacturer, as that price is the lowest price available from the manufacturer based on that patient’s outcomes.”
Thus, under this new multiple BP approach, as the manufacturer of a $1,000,000 cancer therapy, you can structure a VBA with the Maine plans that extends a 75% rebate in the event the patient fails to meet pre-specified clinical outcomes, and as long as you offer the same VBA to every state Medicaid program, that 75% rebate will not trigger a BP rebate across all of your Medicaid utilization. If the state agrees to the terms of the VBA, they will be entitled to a 75% rebate, but only for those Medicaid patients that fail to meet the clinical outcomes specified in the VBA. If the state declines the terms of the VBA, they are entitled to the greater of the minimum rebate under the MDRP agreement or the BP as determined under the existing framework (i.e. BPs that do not result from qualifying VBAs). In short, if you have qualifying VBAs, you now have the option to report multiple BPs and the BP that will apply to Medicaid will be a function of that state Medicaid program’s agreement to the VBA terms (or not) and the specific Medicaid patient’s outcomes.
State Medicaid programs are concerned that they cannot implement the VBAs even if they wanted to, and that the multiple BP policy undermines state’s BP entitlement.
Although CMS’ multiple BP policy was received well by certain stakeholders, particularly manufacturers, other stakeholders were not as enthused. Most notable among these detractors is the National Association of Medicaid Directors (NAMD), representing state Medicaid directors nationwide, which stated in their comment letter responding to the proposed rule that “multiple best prices incentivize manufacturers to game the MDRP and create burdens for states.” NAMD characterized the policy as being of “direct benefit to manufacturers and commercial payers” while creating “significant risks for states.” Among other challenges, NAMD notes that the “administrative burdens and demands on state staff resources to implement multiple best prices is significant” and that “states are not in a position to secure these resources in the midst of severe declines in state general revenues resulting from COVID-19.” One of many explicit recommendations by NAMD is that “CMS consider best price as inclusive of any and all pricing structures, such that no pricing structure would be excluded from the best price calculation.”
NAMD’s concerns about administrative burden and gaming raises an interesting issue about potential adverse consequences from the multiple BP approach, at least from the perspective of state Medicaid programs. As discussed above, in order to qualify for the multiple BP approach, you (as the manufacturer) only need to offer the same qualifying VBA to every state Medicaid program that you do to other purchasers. Whether the states accept it or not does not ultimately matter from your perspective because all you need to do is extend them the option, after which you can begin reporting multiple BPs.
As NAMD points out in their comments, however, it is quite possible that most state Medicaid programs may not have the infrastructure and necessary resources to adequately implement the VBAs. Indeed, in recent rulemaking introducing value-based contracting safe harbors to the anti-kickback statute and physician self-referral law, the federal government explicitly excluded pharmaceutical manufacturers from protection under these new safe harbors. This could limit state’s ability to offload data collection and/or analytics that are central to a VBA to pharmaceutical manufacturers. As a result, states may forego VBAs in favor of more predictable, yet potentially lower rebates (because rebates under the VBAs are excluded from the BP reported to non-participating state Medicaid programs) under the traditional MDRP framework.
One might then imagine how manufacturers could exploit this dynamic by segmenting their contracting approach, offering significant rebates as part of VBAs that commercial payers could implement but state Medicaid programs could not, while at the same time protecting these rebates from triggering BP as they normally would. Indeed, this is precisely the concern that the National Organization for Rare Disorders (NORD) articulates in their comments, stating that they have concerns “manufacturers might use VBP arrangements only when convenient” and that they could “bifurcate the contracting for their drug portfolios based on the confidence that they have of predicting an acceptable rate of negative outcomes.”
Whether or not NAMD’s or NORD’s concerns actually lead to a “gaming” of Medicaid BP by manufacturers and commercial payers remains to be seen. The multiple BP policy will not take effect until January 1, 2022, which gives CMS enough time to provide additional guidance on its implementation. Moreover, it’s not clear whether an incoming Biden Administration will maintain the policy in place as currently drafted (or at all). However, we are not surprised that agency efforts to promote the necessary flexibility to spur innovative value-based contracting arrangements raises concerns about opportunities for unscrupulous actors. As often is the case with well-intended changes to longstanding regulatory schemes, the devil is in the details. Now it is up to CMS to carefully consider how to keep the devil at bay without reverting to antiquity.