HHS Message On Value-Based Drug Pricing Complicated But Themes Emerging

US government involvement in value assessments for prescription drugs and the benefits of outcomes-based contracting in lowering drug prices are among the issues being discussed.

Recent public comments by HHS officials on the Trump Administration’s agenda for lowering drug pricing shed some light on the department’s current thinking about value-based pricing for drugs.

Here’s what we’ve heard: HHS doesn’t like the idea of the US government defining the value of prescription drugs and prefers instead a market-based approach. At the same time, the department is skeptical that outcomes-based contracts can effectively lower prices, which is one market-based approach that's been advocated by manufacturers.

“I have long been concerned about the notion that a government bureaucrat can just arbitrarily determine the value of something in people’s lives, the value to any individual cancer or rheumatoid arthritis patient of the products,” HHS Secretary Alex Azar said at a policy conference at the Brookings Institution Oct. 26.

That message has been complicated by the Trump Administration’s recently-announced proposal to lower prices for Medicare Part B drugs through an International Pricing Index (IPI) payment model. (Also see "Medicare's Foreign Price Bench-marking Will Only Hurt Bad Negotiators, HHS's Azar Argues" - Pink Sheet, 25 Oct, 2018.)

Threading The Needle

It seems at odds with the IPI model’s reliance on foreign government-sponsored organizations who make decisions about value. But Azar argued instead that the IPI is a market-based solution that simply adapts the prices negotiated voluntarily by manufacturers with foreign governments.

“It will only be the deals that they have voluntarily made with other countries that will end up being a reference point here,” he said. “It’s efficient. It respects competition. It doesn’t have us just unilaterally setting a price based on what we think the value is.”

HHS Deputy Assistant Secretary for Health Policy and Advisor to the Secretary John O’Brien also expressed the Administration's intention of staying out of value-based drug assessments during the National Academy of Medicine forum on affordable drugs Oct. 15.

“We believe the private sector needs [to use] the tools that they have to be able to evaluate technology,” he said. “There’s a fear that if the government tries to take on health technology assessment itself that it leads to [the perception that] this is the government making a choice and this is the government ultimately denying access.”

The seeming misalignment between that position and the IPI has struck some policy experts. “What I think is really interesting about the proposal is it’s getting at a way to capture some of those reimbursement mechanisms without putting them into place here in the US directly,” former Medicare official Jonathan Blum said in an interview with the Pink Sheet.

“It’s capturing that impact, creating the index based upon other countries’ purchasing processes and philosophies and including those in the index. It brings more of a value-based reimbursement system. You could argue it’s right or wrong but that is what’s been chosen.”

Blum was principal deputy administrator of the Centers for Medicare and Medicaid Services and director of the Medicare program during the Obama Administration. He is currently managing principal at the Health Management Associates consultancy.

The US has no centralized government-sponsored organization that conducts cost effectiveness evaluations for drug reimbursement unlike countries such as the UK, with its National Institute for Clinical Excellence (NICE). Instead, cost effectiveness analyses in the US are conducted in the private sector by payers and independent organizations like the Institute for Clinical and Economic Review (ICER).

Not surprisingly, ICER takes issue with the notion of importing value assessments from abroad for US reimbursement decisions.

“Determining what an appropriate price for medicines should be is a nuanced, multi-stakeholder process, and it’s unclear why the US would offshore this important job to European governments that have very different health systems, contextual considerations, and budget priorities,” a spokesperson told the Pink Sheet.

“As demonstrated through the growing stakeholder engagement we’ve seen during ICER’s evidence reviews, the US is plenty capable and increasingly willing to do the hard work of determining what a medicine’s value-based price should be,” he added.

Disenchantment With Outcomes-Based Contracts

Although HHS seems committed to the notion of letting market players determine drug value, officials have lately expressed skepticism about how effective manufacturer-led outcomes-based contracting can be in lowering drug prices. There appears to be a perception that manufacturers will only engage in such an arrangement if they believe their net price will be a positive for them.

“We don’t believe outcomes-based contracting on its own is a panacea to the concept of drug pricing," O’Brien told the NAM forum.

CMS’ recent decision not to move ahead with a value-based purchasing contract for Novartis AG’s high-cost gene therapy, Kymriah (tisagenlecleucel), seems consistent with that position.

"As we looked at the specific [Kymriah] proposal, we didn't feel like it would meet our needs," Verma explained to reporters in July. "We didn't think that it would be successful as proposed. So we are looking in a different direction." (Also see "CMS' Verma Touts Value-Based Payments After Cancellation Of Pilot For Novartis' Kymriah " - Pink Sheet, 12 Jul, 2018.)

Nevertheless, the Administration has also taken the position that it won’t stand in the way of value-based purchasing.

“We do recognize that some of our rules may be in the way of bona fide contracting negotiations between plans and manufacturers that may want to agree on a …therapeutic outcome and chose to contract based on that," O'Brien said. "But because of how our rules work, it may affect their other price reporting mechanisms. So we’re looking at ways to get the government out of that.”

In line with that approach, CMS recently approved the Oklahoma Medicaid program’s request for a waiver from some rules that would enable it to negotiate value-based contracts for drugs.

CMS will allow the state to negotiate supplemental rebate agreements in the context of value-based contracts with drug manufacturers that could produce extra rebates for the state if specified clinical outcomes are not achieved. (Also see "Oklahoma Medicaid Plan For Value-Based Contracts Cleared By CMS" - Pink Sheet, 27 Jun, 2018.)

The next step will be for manufacturers to engage with the state on value-based contracts. The outcome of those negotiations could demonstrate the potential benefit of such arrangements.