States mull value-based drug pricing models but face significant barriers: report 

Drug prices
A new report looks at how states are trying value-based models for drug pricing. (Getty/Charles Wollertz)

States are seeking to try value-based payment models to mitigate high drug costs, but there are plenty of barriers to implementing these programs, according to a new report. 

Several states have rolled out outcomes-based or population-based models for drug pricing in Medicaid. Louisiana and Washington, for example, operate “Netflix-style” subscription models for hepatitis C drugs. States such as Michigan and Oklahoma are testing outcomes-based approaches. 

However, this is generally an unexplored area for state programs, according to the analysis (PDF) from the Duke-Margolis Center for Health Policy, as officials learn how to best engage in negotiation with drug manufacturers. 


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“This is just really new territory for a lot of these states to even interact with manufacturers this way—knowing just the right mechanisms and the right way to begin these conversations,” Marianne Hamilton Lopez, Ph.D., biomedical innovation research director at Duke-Margolis and one of the report’s authors, told FierceHealthcare. 

RELATED: Express Scripts—Value-based programs increasing adherence, lowering drug costs 

Lopez said that there is a lot of interest from states in testing out these kinds of value-based strategies, but there are few models to learn from, and taking lessons from one another can also be a challenge. 

Because of how much states' regulatory environments and data capabilities can vary, it’s hard for officials to make direct comparisons to what’s worked elsewhere, she said. 

“States are pretty different in the laws that they’re interacting with and the data they have access to,” Lopez said. “It’s hard to learn best practices from one another."

The Duke-Margolis report includes case studies from several states including both outcomes-based and population-based models that could offer a look at successes and challenges.  

RELATED: CMS approves value-based drug payments in Michigan’s Medicaid program 

For example, states trying Netflix-style models aim to eliminate or significantly reduce hepatitis C infections by boosting access to effective therapies—but, to succeed in the long term, they must have built-in educational programs for physicians and the capacity to offer public health screenings. 

The report offers several short- and long-term solutions policymakers can take to better support states in their quest to address drug pricing. To start, the Centers for Medicare & Medicaid Services (CMS) should submit a letter to state Medicaid directors that informs them they can apply for waiver flexibilities to test these drug pricing models. 

Moving forward, CMS should consider a model Section 1115 waiver that allows states to pilot value-based models targeting specific criteria for participation, such as a threshold percentage of payment at risk. 

“It’s just really exciting to see this much innovation and know that states are, even with limited resources and so many priorities, they’re really willing to try and be innovative here,” Lopez said. “I hope that we can help support that as a policy and health community.”