CMS proposed rule aims to encourage value-based drug pricing

The CMS wants to make it easier for private insurers, state Medicaid programs and prescription drug manufacturers to strike up value-based payment arrangements tied to clinical outcomes.

The agency issued a proposed rule late Wednesday designed to overhaul regulations that hinder such payment arrangements, with the goal of expanding access to new, high-cost drugs, such as gene therapies.

“This proposed rule really creates the pathway for private insurance companies to enter into value-based agreements with manufacturers,” CMS Administrator Seema Verma said on a press call on Wednesday. “This proposal doesn’t guarantee lower prices, but what it does do is it provides a tool in the toolbox for plans to negotiate with manufacturers.”

Verma said that while the flexibilities introduced in the proposed rule will enable the development of value-based agreements in the commercial market, state Medicaid programs will be able to take advantage of the deals. The proposed regulation was structured to ensure that Medicaid would continue to receive the lowest price for a drug.

The overhaul of current regulations “shifts us away from our typical negotiations around drug pricing, which are usually volume-based, and it shifts that conversation to having negotiations around outcomes, and increases competition for manufacturers to develop drugs that are not only cost effective but have a definitive clinical outcome,” Verma said.

The proposed rule would allow for more value-based payment arrangements by changing the federal reporting requirements under the Medicaid drug rebate program. Current regulations don’t make room for value-based payments and instead encourage insurers and drug makers to set prices based on the quantity sold instead of the quality of the drug, which leads payers to limit access to treatments, the CMS said.

The proposed rule would allow companies to report to the CMS multiple “best prices” for a drug if the prices are tied to a value-based payment arrangement. The best price is the lowest net price a drug maker offers. Manufacturers currently face challenges in accounting for rebates and discounts offered under value-based arrangements when reporting the best price, Verma explained in a Health Affairs blog post.

The proposed rule also clarifies how drug makers can report a drug’s best price under bundled sales. It would also enable “pay-over-time” payment models in which payment is made when benchmarks are hit. The proposed rule would further permit revisions to the reporting of best prices beyond the current 36-month time limit, allowing for long-term arrangements that tie payment to outcomes sustained for four or more years.

Beyond value-based payment arrangements, the proposed rule also address opioid use. It would implement new opioid-related drug utilization review standards required under the Substance Use-Disorder Prevention that Promotes Opioid Recovery and Treatment for Patients and Communities Act.

The proposed regulations also clarify that drug manufacturers can no longer include the sales of authorized generic drugs in the calculation of the brand name average manufacturer price. Further, the rule clarifies how manufacturers calculate their average manufacturer price and best price when considering patient assistance programs. Rebates paid on Medicaid managed care claims are only excluded under a CMS authorized supplemental rebate agreement, the CMS said.

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