Medicare Value-Pricing Options Vary Widely In Part B Payment Experiment

One option from CMS would adjust coinsurance to steer beneficiaries toward 'higher-value' drugs while other possible arrangements relate more directly to reducing Medicare payments.

The Centers for Medicare and Medicaid Services suggests four types of value-based pricing strategies in its recent proposal to experiment with new approaches to drug reimbursement in Medicare Part B.

In a proposed rule released March 8, CMS says it will test one or more value-based approaches in addition to experimenting with an alternative to the average sales price plus 6% payment formula used for Part B drugs (Also see "CMS Unveils Bold Approach To Managing Medicare Part B Drug Costs" - Pink Sheet, 8 Mar, 2016.).

The value-based strategies listed in the proposal include:

• Discounting or eliminating patient coinsurance amounts,
• Reference pricing,
• Indication-based pricing, and
• Outcomes-based risk-sharing arrangements

The approaches would be applied to specific categories of Part B drugs where appropriate and not to all drugs, the agency says.

It is unclear whether the proposal will advance in its current form; it has been greeted with strong opposition from a number of stakeholders (see related story, (Also see "CMS Payment Experiment Strains Legal Powers, Reimbursement Norms" - Pink Sheet, 14 Mar, 2016.)).

Adjusting coinsurance to steer patients toward less expensive drugs may be considered less onerous than some of the other types of arrangements. However, even that would represent a major change because to date, drug coverage in Part B has been largely unmanaged.

CMS notes that although many Medicare beneficiaries have wrap-around coverage that reduces or eliminates coinsurance for drugs, “reducing cost sharing for certain products can still provide an effective incentive for a subset of the population to encourage use of high-value products.”

Beneficiaries currently are responsible for coinsurance amounting to 20% of the cost of a Part B drug. CMS is proposing to reduce or waive the coinsurance for high-value drugs but not to increase it for “low-value” drugs.

The other three value-based approaches focus more directly on reducing Medicare payments. Reference pricing would involve grouping “therapeutically similar” drugs together, setting a payment rate for the “most clinically effective” drug as a benchmark and then “payment for the remaining products could be adjusted downward based on their effectiveness in relation to the most clinically effective drug,” the proposal explains.

Indication-Based Pricing Would Be Guideline Driven

Indication-based pricing would involve higher payments for more effective uses of a drug and lower payments for uses in which the drug is less effective.

Manufacturers are engaging voluntarily in some indication-based pricing experiments in the private sector. Pharmacy benefit manager Express Scripts Holding Co. is planning to launch a pilot program with a handful of oncology drugs covered under the pharmacy benefit in the near future (Also see "Express Scripts’ Payer Clients On Board With Indication-Based Pricing, Exec Says" - Pink Sheet, 17 Sep, 2015.).

And CVS Health Corp. is also looking at trying out such payment arrangements (Also see "CVS Indication-Based Pricing For Cancer Drugs May Roll Out Later In 2016" - Pink Sheet, 4 Mar, 2016.).

But CMS appears to be talking about an approach that would not involve manufacturer consent. “We propose to use indications-based pricing where appropriately supported by published studies and reviews of evidence-based clinical practice guidelines … to more closely align drug payment with outcomes for a particular indication,” the proposal states.

Indication-based pricing decisions “would reflect the clinical evidence available and strive to rely on competent and reliable scientific evidence from neutral and/or independent sources,” CMS explains.

“We understand that the quality of available evidence can vary for any given drug or indications. High quality evidence is comprehensive, relies on randomized trial designs where possible, and measures outcomes. Research findings should be valid, competent, reliable and generalizable to the Medicare population.”

CMS points to the assessments being done by the Institute for Clinical and Economic Review (ICER) as an example of the kind of cost effectiveness review that could support indication-based pricing. However, manufacturers have criticized the ICER reviews for not taking individual patient preferences into account in measuring the cost effectiveness of drugs, among other things.

ICER is planning to review some Part B drugs later in 2016 (Also see "ICER's Drug Review Agenda Includes Lung Cancer, MS, Psoriasis Products" - Pink Sheet, 24 Nov, 2015.).

Outcomes-Based Contracts Would Be Voluntary

Outcomes-based risk sharing contracts between CMS and Part B drug manufacturers would be voluntary under the proposal. Such agreements would tie the final price of a drug to results achieved in specific patients, rather than using a “predetermined price” based on historical population data, and include clearly defined outcomes, the agency says.

CMS requests comments on methods to collect and measure outcomes, including parameters around standardizing value metrics based on differences in drugs and their targeted patient subpopulations. But “at a minimum, and in addition to sources such as evidence-based literature and best practices, we propose manufacturers provide all competent and reliable scientific evidence to create an accurate picture regarding clinical value for a specific drug.”

Difficulties involved in collecting and analyzing data on outcomes has been a significant obstacle to executing such arrangements in the private sector, though some contracts have been announced recently (Also see "Building A Foundation: Express Scripts’ Miller On Recent Outcomes-Based Contracts" - Pink Sheet, 29 Feb, 2016.).

CMS said it has been approached by manufacturers interested in testing new approaches to paying for drugs under Part B that are not “accommodated” with the current payment system. “These approaches are generally built around achievement of clinical outcomes and a new payment flow between CMS and the manufacture, using a mechanism such as a rebate,” the proposal explains.

For Medicare, outcomes-based rebates could lead to a reduction in the “uncertainty that is associated with a new drug’s clinical value, performance and financial impact,” CMS points out. For manufacturers, the arrangement would allow them to “better differentiate and demonstrate the value and effectiveness of their product.”

One example would be a “try before you buy” arrangement, CMS suggests. “For a drug that works for some but not all beneficiaries, a manufacturer might offer to provide a partial or full rebate to CMS for the costs of a product purchased for patients that do not ultimately benefit from therapy.”

The agency also says that “because of the time lag involved in assessing response to therapy from claims data sources, a rebate might be the most efficient way to implement such a purchasing arrangement.”