What Final Medicaid Value-Based Purchasing Rule Means for Payers

Honing definitions

In the proposed rule, commenting organizations such as the American Association of Retired Persons (AARP) were concerned about the new CMS definition for value-based purchasing agreements.

These organizations worried that the definition was excessively broad, permitting too many arrangements to qualify as “value-based,” and that the term “value” itself was particularly vague. They predicted that pharmaceutical companies would leverage this ambiguity to boost revenue and diminish Medicaid rebates.

CMS mostly retained its broad definition for the best price and average Medicaid price determinations and reporting. But the agency added the term “select” before “populations” in the finalized definition in order to emphasize that the value-based arrangements must apply to specific populations using the drug therapy.

“We believe the definition of VBP arrangement should be broad enough so that manufacturers and payers, including states, have the flexibility to structure a VBP arrangement specific to the drug therapy being offered. Therefore, we are maintaining a broad definition to ensure such arrangements are recognized for purposes of determining and reporting best price and AMP; however, we agree with commenters that the evidence or outcomes-based measures used in a VBP arrangement should be evaluated in a select population,” CMS explained in the final rule.

CMS gave further clarification around its choice of words for the definition, which can be found in the text of the final rule.

Addressing “best price”

AARP and others also expressed concerns that the new CMS regulation would weaken the Medicaid best price policy. AARP credited the best price requirement with saving Medicaid up to $5 billion in 2015. But by promoting value-based purchasing, the CMS final rule could result in higher drug launch prices, which would increase Medicaid spending, AARP explained.

In the same vein, commenters predicted that pharmaceutical manufacturers might take advantage of the flexibility to offer multiple best prices.

“It is not clear from the rule as drafted if states would default to having the option to participate in a VBP arrangement offered to a commercial payer. It is not even certain that manufacturers would be able to share the details of a VBP arrangement, as such information is generally proprietary. Nor is it clear if states would need to be in identical VBP arrangements with the same targets, metrics, and outcomes to avail themselves of best prices realized between manufacturers and private entities,” National Association of Medicaid Directors (NAMD) said in its letter.

In response to these concerns, CMS emphasized that this rule builds on the previous regulation. Manufacturers have been using the bundled sales approach—which value-based purchasing agreements will fall under when the regulation goes into effect—with the assumption that value-based purchasing models would be categorized as such.

The best price reporting requirement will continue to be in place and manufacturers that do not engage in value-based agreements will have to report a single best price.

“To the extent that manufacturers increase prices on their products faster than the CPI-U, manufacturers would pay additional rebates (that is, inflation penalties) as required under section 1927(c) of the Act,” CMS explained.

Furthermore, regarding concerns related to implementation challenges for states, CMS noted that this regulation is just one tool that states may choose to use to lower costs. If it does not appear in their beneficiaries’ best interests, the states are not required to enter into value-based purchasing models with manufacturers.

That being said, CMS promised to support operational and implementation challenges by providing a Medicaid Drug Program system to replace the Drug Data Reporting and Medicaid Data Reporting systems. It will be available in July 2021.

Despite CMS support for these arrangements, value-based purchasing agreements between payers and pharmaceutical manufacturers are not plentiful. This past year, few—if any—value-based contracts between payers and drug manufacturers have hit the headlines.

In 2019, CMS approved an alternative payment model for Colorado’s Medicaid program, with the intent of reining in prescription drug spending.

Under these value-based contracts, Colorado would receive additional rebates if the drugs fail to meet patient outcomes metrics. As in many value-based arrangements, the metrics are based on health outcomes and results in targeted populations.

Other states have initiated population-based value-based purchasing arrangements, such as Washington’s arrangement with AbbVie.

Time will tell whether this final rule gives value-based purchasing the boost CMS thinks it needs.