Medicaid P4P Pharmaceuticals Public Policy Quality Regulation

Will value-based pricing be coming to the U.S.?

The answer may be yes.  One of the big inpediments to value-based pricing of pharmaceuticals was that any discount given to any single organization based on outcomes needed to be reflected in the Medicaid price.  Since outcomes are subject to random noise, there will inevitably be health plans that end up getting a low price due to worse than expected outcomes.  If a single discount to a single plan based on idiosyncratic factors lead to large Medicaid discounts, few life sciences companies would be interested in these value-based contracts.

However, CMS is opening up an avenue to these value-based contracts in a July 2016 guidance document.  First some background:

With the introduction of VBP arrangements into the pharmaceutical marketplace, manufacturers have asked CMS if these types of arrangements impact their drug’s Medicaid best price. Manufacturers are concerned that the variety of price concessions and services offered to payers in a VBP arrangement may lower the manufacturers’ best price and increase their Medicaid rebate obligations, thereby serving as a disincentive to promoting VBP arrangements.

Section 1927(c)(1)(C) of the Social Security Act defines “best price” to mean, for a single source drug or innovator multiple source drug of a manufacturer (including the lowest price available to any entity for an authorized generic drug), the lowest price available from the manufacturer during the rebate period to any wholesaler, retailer, provider, health maintenance organization, nonprofit entity, or government entity in the United States.

Now on to the good stuff.  So CMS just said, if you use VBP you can ignore best price, right?  Well, not exactly.  Here is what they said:

To the extent a VBP arrangement provides supplemental rebates pursuant to a CMS-approved supplemental rebate agreement with the state Medicaid agency, such rebates would be excluded from best price (see 42 CFR 447.505(c)(7)). Therefore, we encourage states and manufacturers to consider negotiating supplemental rebates as part of VBP arrangements.

So it says they are encouraging VBP but they these VBP arrangements must be “CMS-approved” in order for them to be exempt from the “best price” regulation.  What the approval process is and how long it will take is not clear, but I think this is at least a step in the right direction towards allowing payment based on outcomes rather than volume.


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