CMS proposed rule aims to foster more Medicaid value-based drug agreements

Drug prices
The Centers for Medicare & Medicaid Services issued a proposed rule aimed to foster more value-based drug purchasing agreements in Medicaid. (Getty/Charles Wollertz)

The Trump administration issued a proposed rule intended to remove barriers to develop value-based purchasing agreements between states and drug companies. 

The Centers for Medicare & Medicaid Services’ (CMS') final rule gives states more flexibility to enter into value-based purchasing agreements with drugmakers for new and pricey products. The rule also creates minimum standards for Medicaid drug utilization programs intended to combat opioid fraud and misuse.

CMS also revised how a drugmaker must calculate the average manufacturer price of a brand-name drug that has an authorized generic.

“CMS’s rules for ensuring that Medicaid receives the lowest price available for prescription drugs have not been updated in thirty years and are blocking the opportunity for markets to create innovative payment models,” said CMS Administrator Seema Verma in a statement.

The agency said current regulations hinder payers and drug manufacturers from designing new payment arrangements based on a drug’s quality.

“These proposals would support the healthcare system’s move to paying on the basis of value instead of volume and increasing accountability for outcomes, as insurers would be able to better negotiate discounts based on a drug’s effectiveness,” CMS said in a release. “In addition, more widespread adoption of payment arrangements based on value could lead to the collection of more evidence on clinical outcomes for a given therapy.”

The proposal would relax some of the manufacturer reporting obligations around the average manufacturer price and best price in order to encourage the creation of value-based purchasing arrangements.

For the first time, a manufacturer could under the rule report multiple best prices for a therapy under the Medicaid Drug Rebate Program. But these prices must be tied to a value-based purchasing agreement.

“It will also clarify that [value-based purchasing] arrangements can be defined as ‘performance requirements’ under the definition of ‘bundled sale’ which will also facilitate [value-based purchasing] arrangements, especially for small population drugs,” CMS said in a fact sheet.

The regulation would also codify new laws that change the calculation of the average manufacturer price for a brand-name product to exclude the sales of authorized generic drugs, which are generics made by the original manufacturer.

“Prior to this statutory change, manufacturers included the sales of the authorized generic in the [average manufacturer price] of the brand name drug which resulted in lower AMPs and reduced rebates paid for the brand name drug,” CMS said.