By Surabhi Dangi-Garimella, Ph.D.

Following a proposed rule in summer 2020, the Centers for Medicare & Medicaid Services (CMS) has finalized a rule to allow state Medicaid agencies to enter into innovative value-based pricing agreements with manufacturers. This is a major development for the federal payer that could yield significant savings.

The traditional Medicaid Drug Rebate Program allows drug manufacturers to provide the ‘best price’ for brand name drugs and rebates to federal and state governments—CMS cannot negotiate the rate. This model, however, has not been able to keep up with the novel forms of therapies developed by the drug manufacturers.

The new final rule from CMS will allow manufacturers to establish a price based on clinical outcomes of individual patients as well as using benchmarks such as reduced hospitalizations, and physician office visits. If the drug fails to achieve the said measures, the payer does not have to pay the manufacturer the full price for the drug. This would be particularly significant for high-cost drugs such as gene therapies that are priced from several hundred thousand (CAR T-cell treatments for cancer; Luxturna, approved for a rare form of inherited blindness) to millions (Zolgensma, approved for spinal muscular atrophy).

To be implemented in January 2022, the value-based payment model will allow manufacturers to offer multiple best prices to states instead of a single best price. The expectation here is that Medicaid will be in a much stronger negotiating position, which could in turn improve beneficiary access to prescription medicines. However, manufacturers who do not opt into value-based payment agreements can continue with the traditional drug rebate program and best price reporting.

Included in this final rule is a provision to ensure patient assistance programs, such as copay cards, lower patients’ out-of-pocket costs by counting towards their deductible or other cost sharing. If health insurance companies and pharmacy benefit managers end up benefiting from the copay assistance programs, they have to report this benefit to CMS as Medicaid rebates so adjustments can be made, and patients are the ultimate beneficiaries of any price concessions. This cost-sharing policy will be implemented by January 1, 2023.

Then CMS Administrator, Seema Verma, said in a statement, “Medicaid’s outdated rules have consistently stymied the ability of payers and manufacturers to negotiate drug reimbursement methods based on the actual outcome of the treatment. A new generation of approaches to payment methods is needed to allow the market the room to adapt to these types of curative treatments while ensuring that public programs like Medicaid remain sustainable and continue to receive their statutorily required discounts.”

Implementation of these new value-based payment arrangements are expected to yield $228 million in Medicaid savings through 2025.

Surabhi Dangi-Garimella, Ph.D. is a biologist with academic research experience, who brought her skills and knowledge to the health care communications world. She provides writing and strategic support to non-profit groups via her consultancy, SDG AdvoHealth, LLC.