CMS Rule Allows Payers to Negotiate Prescription Drug Pricing

December 22, 2020 - CMS has issued a final rule allowing payers to negotiate prescription drug pricing based on how well these drugs work for patients, a policy that could reduce overall healthcare spending and utilization.

Currently, state Medicaid agencies are entitled to manufacturer rebates for prescription drugs provided to Medicaid beneficiaries. This process is operationalized by drug manufacturers reporting their best price to CMS for brand name drugs and providing rebates to the federal and state governments under the Medicaid Drug Rebate Program (MDRP).

With the surge of innovative new therapies coming to market, many insurers – including Medicaid – are starting to experiment with value-based payment approaches.

Under present regulations, it’s difficult for prescription drug manufacturers to account for value-based payment arrangements in their Medicaid best price reporting to CMS. This could prevent providers, insurers, and prescription drug manufacturers from developing innovative payment models for new therapies. Current policies also keep payers and manufacturers from designing new payment arrangements based on the value of these drugs for patients.

“Rules on prescription drug rebates and related reporting requirements have not been updated in thirty years, and are thwarting innovative payment models in the private sector,” said CMS Administrator Seema Verma.

“Medicaid’s outdated rules have consistently stymied the ability of payers and manufacturers to negotiate drug reimbursement methods based on the actual outcome of the treatment. A new generation of approaches to payment methods is needed to allow the market the room to adapt to these types of curative treatments while ensuring that public programs like Medicaid remain sustainable and continue to receive their statutorily required discounts.”

Under this new final rule, manufacturers will be more willing to negotiate with payers on drug pricing based on how well their drugs work for individual patients. This is especially significant given the emergence of new genetic-based treatments that may initially be expensive, but could offer benefits to both patients and payers in the long run.

Payers will be able to negotiate prices with manufacturers for these genetic-based treatments based on outcomes and evidence-based measures like reduced hospitalizations, lab visits, and doctor’s office visits. If these measures fail to support the benefits of a drug, then the payer is not accountable for the full price.

The rule codifies a broad definition of value-based payment, which can improve the alignment between pricing and payment to observed or expected evidence in a targeted population. Additionally, the final rule allows manufacturers to report multiple best prices instead of a single best price when offering their value-based payment arrangements to all states.

These changes, effective in January 2022, will help encourage value-based payment arrangements and negotiations to help make new, innovative therapies more widely available to all patients. CMS estimates that these new value-based payment approaches could save up to $228 million in federal and state dollars through the year 2025.

“Basing payment on the effectiveness of a given therapy can foster innovation in the treatments that are most impactful to patients, while reducing overall healthcare spending and hospital visits. When payers are positioned to be stronger negotiators with drug manufacturers, Medicaid beneficiaries will benefit from better access to prescription medications,” CMS stated.

In addition to advancing value-based payment, the new rule builds on recent efforts to combat the opioid epidemic. The changes implement provisions to promote safe prescribing of opioids and other medications through state Medicaid Drug Utilization Review (DUR) programs, which is critical for preventing reducing opioid abuse and misuse.

The final rule also protects patients by clarifying requirements that help to ensure that cost sharing assistance, including copayment assistance cards, has the effect of lowering out-of-pocket costs for patients as intended. CMS is delaying the effective date of this policy until January 1, 2023 to give manufacturers and payers time to make any necessary changes to their patient assistance programs and reporting mechanisms.

“The new rules make clear that if the discounts are not benefiting the patient and instead lower the costs for health insurance companies and their pharmacy benefit managers (PBMs), they must be counted in drug manufacturers’ reporting to CMS for Medicaid rebate purposes, as required by law,” CMS noted.

“This change will help ensure that when patients use a copayment assistance card provided by a drug manufacturer, the value is passed through to the patient’s deductible or cost sharing obligations in full, as opposed to offsetting what the health insurance company would have to normally reimburse the pharmacy.”