Outcomes-Based Contracts May Be Negotiated By Michigan Medicaid

Michigan follows Oklahoma in gaining approval to negotiate supplemental rebates in the context of value-based contracts for drugs. Oklahoma now has four novel contracts in place.

The Centers for Medicare and Medicaid Services has approved a request from the state of Michigan that will enable its Medicaid program to negotiate outcomes-based payment contracts for prescription drugs.

“CMS has authorized the state of Michigan to enter into outcomes-based contract arrangements with drug manufacturers for drugs provided to Medicaid beneficiaries,” according to an amended version of Michigan State Plan for Medicaid approved Nov 14.

Under the plan, Michigan is allowed to negotiate increased supplemental rebates from manufacturers if a drug does not perform as claimed.

Nearly every state Medicaid plan already has the authority to negotiate supplemental rebate agreements (SRAs) but CMS still reviews all state plan amendments, including SRAs. States currently negotiate supplemental rebates in return for preferred placement on state drug lists.

SRAs are exempt from the Medicaid “best price” rule that requires drug firms to extend the lowest price for a drug they negotiate with any other buyer to all state Medicaid programs. That means manufacturers would not have to worry that rebates provided to Michigan under a value-based contract would trigger a new best price that must be offered nationwide.

Contracts negotiated by Michigan Medicaid must be submitted to CMS for prior approval and manufacturers involved in such arrangements still must provide the statutory rebates required by the national drug rebate program.

“The amendment to Michigan’s Medicaid State Plan addresses the impact that innovative and costly new drug therapies are having on state Medicaid programs nationwide,” Michigan's Department of Health and Human Services said in a Nov. 14 release.

“This exciting new arrangement has the potential to improve the quality, value and efficiency of drug-based treatments covered by the Michigan Medicaid program,” added Kathy Stiffler, who serves as acting medical services director in the department. There are 2.4m beneficiaries in the state’s Medicaid program.

CMS Administrator Seema Verma hailed the Michigan approval as the latest example of the Administration’s efforts to lower drug prices.

“I applaud Michigan’s proposal,” she said in a speech to Prevision Policy's Biopharma Congress Nov 14. “As we see innovation in biomedicine, it is incumbent on us to also modernize payment policies.”

Oklahoma Has Novel Contracts For Four Drugs

With the approval, Michigan becomes the second state to gain permission to engage in value-based contracts for drugs, after Oklahoma. (Also see "Oklahoma Medicaid Plan For Value-Based Contracts Cleared By CMS" - Pink Sheet, 27 Jun, 2018.)

Oklahoma has signed value-based contracts for four drugs to date. Most recently, Oklahoma agreed to an “alternate payment plan” with Janssen Pharmaceutical Cos. for its long-acting injectable paliperidone anti-psychotics Invega Sustenna and Invega Trinza, according to Oklahoma Health Care Authority Pharmacy Director Nancy Nesser.

Janssen declined to provide details on the arrangement but confirmed it has a contract with the state for the drugs.

The company also stated: "studies show that earlier initiation of [long-acting injectables] improves patient care. In contrast to daily orals, the long-acting treatment Invega Sustenna has demonstrated superiority versus a group of seven commonly prescribed oral treatments in delaying time to relapse. The time to first psychiatric hospitalization or arrest and/or incarceration was significantly longer for people treated with Invega Sustenna versus these same commonly prescribed oral antipsychotics."

Oklahoma also has a value-based contract with Alkermes PLC covering the company’s long-acting, injectable anti-psychotic drug, Aristada (aripiprazole lauroxil). Under the contract, as adherence goals are met, the price the state pays for the drug decreases. The idea is that adherence will both increase sales and lead to better outcomes.

Oklahoma has finalized an outcomes-based contract with Eisai Co. Ltd. for Fycompa (perampanell), premised on reducing hospitalizations in patients with epilepsy.

And an outcomes-based contract with Melinta Therapeutics Inc. for its drug for bacterial skin infections, Orbactiv (oritavancin), is also based on reducing hospitalizations. Orbactiv does not require hospitalization for administration, as other treatments do. So Oklahoma has agreed to list the drug as a first-line treatment on the understanding that it will lower net costs.