HHS aims to use value-based care payment models to lower drug prices

Drug prices
The Department of Health and Human Services is exploring using more value-based care payment models to lower drug prices, including tying Medicare payments for products to their direct value to patients. (Getty/Charles Wollertz)

The Department of Health and Human Services (HHS) wants to test models that would pay drugs based on their clinical value as part of a new plan to tackle high prices.

The plan, released Thursday, lays out several administrative tools the agency plans to take to address high prices. It also calls on Congress to adopt several reforms such as giving Medicare price negotiation authority and cap Part D catastrophic spending.

“By promoting negotiation, competition, and innovation in the health care industry, we will ensure cost fairness and protect access to care,” HHS Secretary Xavier Becerra said in a statement Thursday.

One of the key tools that HHS aims to use is to employ payment models to curb drug prices. The agency wants to test models that use value-based payments in Medicare Part B.

The Center for Medicare and Medicaid Innovation (CMMI) can create small-scale mandatory models that could link payments for drugs and biologics to metrics that include “improved patient outcomes, reductions in healthcare disparities, patient affordability and lower overall costs,” the plan said.

Such models could extend to payers beyond Medicare, including employer-sponsored and Affordable Care Act exchange plans as well as Medicaid.

Other models may boost incentives for greater value therapies that include biosimilars and generics. These incentives could also come with an outcome-based arrangement with drugmakers.

“This approach has the potential to reduce public and private sector costs, expand the utilization of biosimilars and generics and encourage manufacturers to develop innovative new drugs—all without reducing anyone’s access to needed medicines,” the plan said.

HHS also wants to test a voluntary Part D model that gives beneficiaries a choice of Part D plans that offer “more predictable out-of-pocket costs for a broad set of formulary insulins,” according to the plan. “This model could be updated to include additional drug classes that are associated with high out-of-pocket costs for beneficiaries and have high prevalence and/or utilization within the Medicare population.”

RELATED: Biden directs Congress to give Medicare broad authority to negotiate for lower drug prices

CMMI is also considering models that would tie accountability to the total cost of care for a patient. This approach ties payments to results in changes for drug utilization, spending and outcomes.

“Models that test innovative bundled payments for a broad set of services could include incentives for care redesign to support patient engagement, enhanced care coordination and improved quality,” according to the plan.

Such a model could offer incentives for dispensing cheaper biosimilars and generics.

CMMI has approved total cost of care models before for healthcare services and a Trump administration review found that such a model in Maryland saved Medicare money.

This isn’t the first time the federal government has turned to payment models to lower drug prices. The Trump administration finalized a rule late last year that created a most-favored-nation model that tied prices for drugs reimbursed under Medicare Part B to an average paid by countries overseas. But the Biden administration has proposed nixing the model after lawsuits from the pharmaceutical industry.

Turning to Congress

The plan also renews HHS’ support for extending drug price negotiation authority to Medicare, a key policy demand of the White House. But the negotiated price could also apply to commercial and ACA plans.  

But the plan calls for Congress to adopt several other reforms that could spur greater use of biosimilars and generics. These include creating federal support for “nonprofit generic drug manufacturers that increase the availability of generic drugs,” according to the plan.

Other actions include potentially lowering the exclusivity period for biologics.

Congress can also create a cap on catastrophic coverage for Part D beneficiaries and create a beneficiary out-of-pocket cap.

The plan comes as Congress is drafting a massive $3.5 trillion infrastructure package that would add dental, vision and hearing benefits to Medicare. Democrats are exploring giving Medicare drug price negotiation authority to help pay for the package.