Paving the Way for Payment Innovation
On June 17, 2020, CMS announced a proposed rule that would change how pharmaceutical manufacturers report pricing and discounts to Medicaid. The goal of this new rule is to reduce regulatory requirements that currently hinder manufacturers’ ability to enter into value-based agreements and other innovative payment models.
From our perspective, Best Price reporting to CMS continues to be a significant hurdle in the ability for payers and manufacturers to engage in Value Based arrangements. It is more critical than ever that we evolve our payment model on prescription drugs to allow for more creative reimbursement models, competition on clinical outcomes, and improved access to new therapies. This rule is a great start.
In recent years, the wave of value-based contracts has started to fundamentally shift healthcare reimbursement from fee-for-service and volume-based models to payments tied to patient outcomes (or lack thereof). To date, hospital systems and physician reimbursement have largely evolved from to these new models. However, prescription drug reimbursement has lagged behind, largely due to the hurdles created by “Medicaid Best Price.” Currently, manufacturers must report to CMS the “Best Price” or lowest net price, including all rebates and discounts, and then, must provide equal rebates to Medicaid or 23.1%, whichever delivers the lowest net price. Because these rules are administered down to the unit level, they limit a manufacturer’s ability to negotiate and pay value-based rebates on certain portions of the utilization where a drug therapy may fail for a patient. In the current landscape, any supplemental rebate could re-set the Best Price and that amount would have to be paid for all doses of the drug covered under Medicaid Plans.
This is a complexity that needs to be addressed.
The new rule includes a proposed definition of value-based purchasing that provides direction to manufacturers and payers engaging in these payment models. There are two payment model alternatives highlighted in CMS’s rule; both provide flexibility to commercial health insurers to negotiate while assuring the best price to Medicaid plans. The first model allows manufacturers to report best prices as an average of “bundled sales”. The benefit of this model is that the best price benchmark is an average of all of the units, including treatment failures and successes, versus the current model where best price is reported as the lowest unit price in the market. The second model allows manufacturers to report more than one best price on a product to account for utilization paid under a value-based arrangement. In this model, the manufacturer would report the best price of each outcome under a value-based agreement as well as the best price where there is no value-based agreement. In both of these proposed models, Medicaid would benefit from all of the proposed reform and would always receive the best price for the applicable subset of utilization.
This proposed rule and the flexibility it could provide is especially critical in our current healthcare environment, particularly with the recent approval of four gene therapies and several more in the pipeline. These gene therapies are groundbreaking in that they can be curative in a single course of treatment, but they are launching at unprecedented costs. Our current system is set up to pay monthly or yearly for prescription drugs that patients take for chronic conditions, not for single dose or course curative therapies with a massive one-time cost.
Several major European nations including Germany, Spain and Italy have adopted Value-based pricing models for medicines including including gene therapies and other treatments. Some of these models focus on cost-effectiveness ratios but do provide consideration for additional therapeutic value and innovation.
It is time that the US market to catch up and allow for new approaches to drug reimbursement. Changing outdated regulations that prevent these approaches is an essential component in providing additional financial relief to our healthcare system, which will ultimately result in better health outcomes.
A Fact Sheet on the Proposed Rule can be viewed at: