Technological and scientific advancements have dramatically altered the treatment landscape in several disease states. These include orphan diseases and conditions that previously had no disease-modifying treatment options. These innovative therapies have also come with unprecedented costs, with some agents introduced at a price exceeding one million dollars for a single patient. Value-based purchasing arrangements (VBPs) have attempted to manage the initial cost of these agents. In a VBP, which is sometimes referred to as an outcome-based arrangement, the ultimate price that is paid for the drug is dependent on the clinical outcome. In addition to a plan’s traditional utilization management initiatives to maintain sustainability, this strategy aims to hold pharmaceutical manufacturers responsible for the result of their product. This is similar to other healthcare environments, such as when readmissions impact hospital reimbursement. Under VBPs, a pharmaceutical manufacturer would issue a reimbursement if their product failed to produce the desired clinical outcome. In addition, this strategy incentivizes the development of unique therapies that are more likely to have a clinically significant impact. Novel medications that improve outcomes would provide a greater healthcare value and could be priced higher in the market. Currently, volume is a large driver of cost, with discounts from pharmaceutical manufacturers often tied to the number of units dispensed. This is less helpful for niche-area pharmaceuticals and genuinely innovative treatments used for uncommon conditions.
Practical considerations of VBPs, such as a higher administrative burden (e.g., paperwork, electronic database access, automated retrieval of data), limit their application to all products. Since it can be expensive to measure outcomes in order to assess the worth of a product to an individual patient or plan, VBP concepts are most commonly applied only to the costliest medications. For instance, VBPs can have a significant impact on the pricing of agents like gene therapy or select oncology agents. Some of these agents can have a large clinical impact on disease progression, survival, or quality of life, but a drug may not have the same results in all patients. However, value-based or outcome-based pricing may provide an increased incentive to payers by decreasing their initial risk and providing more sustainable treatment coverage.
While there has been an increase in the use of VBPs by states, manufacturers, and other payers in order to control drug spending and tie patient outcomes to cost, uncertainty remains in developing novel VBPs. The Medicaid Drug Rebate Program (MDRP) created by Congress under the Omnibus Budget Reconciliation Act of 1990 ensures that Medicaid receives the lowest net price for a single source drug or innovator multiple source drug during the rebate period charged to any payer. Simply put, pricing net of all discounts, must be reported to Medicaid, and the best price would have to be offered to Medicaid as well. It is critical that Medicaid programs continue to receive the lowest price available for a single source drug or innovator multiple source drug.
On June 19, 2020, the Centers for Medicare & Medicaid Services (CMS) issued a proposed rule that is aimed at promoting VBP flexibility for a variety of payers, including Medicaid, with a goal of maintaining a best price for Medicaid. CMS notes that best price creates challenges related to the availability of VBP arrangements. For example, under existing best price rules, if an individual fails to achieve the specified clinical outcome under the VBP arrangement, the drug manufacturer may be required to provide a discount or otherwise may not be entitled to payment for that patient. Thus, the best price of that drug for purposes of the MDRP could become zero. This possibility has stunted the development and proliferation of VBPs. This new proposal from CMS, which includes other regulatory revisions as well (e.g., minimum standards for Drug Utilization Review [DUR] programs), could ultimately lower healthcare costs and potentially limit spending on treatments with limited value over time.
The ultimate goal of a VBP is for all parties to have a vested interest in the outcomes of drug therapy and to share the risk related to healthcare costs. Specifically, it calls on manufacturers to have more “skin in the game.” Moreover, the change to the Medicaid market could have potential savings applicable to a variety of market segments, impacting all Americans. Regardless of the final outcome or any changes made to the current draft prior to its possible rollout, the proposal demonstrates readiness from CMS to pivot prior strategies to mitigate rising drug prices.