Value-Based Contracts: Medicaid Best Price Concerns Could Be Eased With CMS Guidance

Absent any legislative remedy, an administrative fix could provide manufacturers with confidence that value-based arrangements won’t trigger a new best price, Duke Margolis policy experts propose.

The Centers for Medicare and Medicaid Services could use its existing statutory authority to issue guidance “clarifying” regulations governing the way manufacturers report pricing under the Medicaid drug rebate program to help enable values-based contracts, according to a policy brief developed by the Duke Margolis Center for Health Policy.

The issue of best price is one of the most frequently cited regulatory obstacles to value-based arrangements such as outcomes-based contracts. The concern is that if a drug’s price is heavily discounted under such a contract, it could trigger a new Medicaid best price that must be offered to every state.

CMS could issue guidance stating that value-based contracts should be included in the definition of “bundled sales” for the purpose of calculating the average manufacturer price (AMP) for covered outpatient drugs in the Medicaid rebate program, the paper suggests.

“Bundled sales” are defined as an arrangement in which price concessions are conditioned on the purchase of a drug or drugs or on some other performance requirement such as market share or formulary tier placement.

If value-based arrangement were included in the definition, manufacturers would calculate a weighted-average price for products in the bundle, which would avoid having to report an individual price that may have been discounted to a level below the current best price because of the terms of the contract.

“There is not a desire on Capitol Hill to do a blanket exemption from best price. I would say that [Finance Committee] Chairman Grassley is not there,” staffer Stuart Portman said.

Inclusion of outcomes-based contracts in the definition would be appropriate because such arrangements require the bundling of a higher net price when a drug works with a lower net price when it does not, the paper says.

The clarification of existing regulations is intended to update the concept of bundled sales to accommodate value-based payment arrangements, and to “increase legal certainty for payers and manufacturers who seek to enter [such] arrangements, without restricting the statutory intent of [Medicaid best price] to enable a population of Medicaid recipients to get the best price that is offered in the marketplace,” the paper states.

Currently, “manufacturers and commercial payers are concerned that the … very low ‘un-bundled’ net price for the patient who experienced the worst outcome could be interpreted as a new low [Medicaid best price], even though it only occurs as one component of the outcomes-based contract. This would diverge from the intent of the bundled sale provision,” it adds.

Clarifying guidance should address two issues, the paper says. One would include drug outcomes as a performance requirement that satisfies the definition of a bundled sale.

The other would address situations, such as with gene therapy, where there is only one drug involved and few patients. In those cases, Medicaid best price could be calculated over a set of contracts with similar or identical discount/outcomes provisions.

The paper also proposes that if an outcomes-based contract results in a 100% rebate, the drug could be considered a “free good,” which is exempt from best price reporting.

Senate Bill Steers Clear Of Best Price Remedy

The briefing paper offers a way to resolve the issue around best price without having to rely on legislation, which appears unlikely in the near term.

The Senate Finance Committee’s drug pricing bill addresses ways to facilitate value-based payment arrangements in Medicaid but stops short of establishing an exemption from best price requirements for such contracts. (Also see "Medicaid Rebate Ceiling Raised To 125% In Senate Legislation " - Pink Sheet, 23 Jul, 2019.)

That conversation has been “paused” and “likely will not be resolved this calendar year,” committee staffer Stuart Portman commented during a conference on paying for transformative therapies sponsored by Duke Margolis on 11 September. The meeting also included a discussion about using risk pools to pay for gene therapy. (Also see "Curative Gene Therapy Coverage May Need Government-Funded Risk Pools" - Pink Sheet, 16 Sep, 2019.)

If the provision on value-based payments “were to have a broader impact, it would need to include something related to best price and that conversation was never fully actualized,” he acknowledged.

Although there has been interest in the issue in the House, “there is not a desire on Capitol Hill to do a blanket exemption from best price. I would say that [Finance Committee] Chairman Grassley is not there,” Portman said.

What the Duke Margolis paper outlines “looks a lot like some of the things we have pushed for, though it’s probably a lot more informed. … But ultimately there were political issues with getting it across the finish line,” he explained.