Tying payment for a drug to the benefit it actually delivers is not a new idea, nor has it been impossible for drugmakers and insurers to structure such contracts under existing rules. But value- or outcomes-based deals remain a small minority of the many agreements governing the prices insurers pay for medicines.
“[V]alue-based payment for prescription drugs is still in its infancy,” wrote CMS head Seema Verma in an article published Wednesday in the journal Health Affairs.
One hurdle often cited by drugmakers is the price reporting they’re required to make to CMS. Under a decades-old regulation, pharmaceutical and biotech companies need to report the “best price” they offer on their products in the U.S., after accounting for rebates and discounts.
Drugmakers must match this price, or pay a 23.1% rebate, for the drugs they sell to Medicaid, which provides insurance to tens of millions of Americans.
But best price reporting has become a sticking point when drugmakers attempt to structure deals with insurers that reduce a drug’s cost depending on whether or not a patient benefits. Essentially, drugmakers don’t want to offer any rebate greater than what they would be required to give to Medicaid.
This has become particularly important with the arrival of extremely expensive cell and gene therapies, which promise transformative or even curative treatment but carry greater uncertainty.
Seeking to secure broad coverage, drugmakers have proposed annual installment payments that would continue for only as long as a drug is effective. Medicaid rules, however, would view any reduced payment — say two years’ worth of a total cost paid over five years — as the drug’s best price, requiring the manufacturer offer that across all state Medicaid programs.
The changes proposed Wednesday would give more flexibility in how drugmakers could report their prices to Medicaid.
In one scenario, drugmakers could report an average of the prices they charge based on different outcomes, bundling together instances when the medicine underperformed, and higher rebates are paid, with instances when the medicine worked as intended and rebates are less.
Alternatively, drugmakers could report multiple best prices, which would be available to Medicaid programs based on each outcome.
The intent is for drugmakers to be able to enter into more outcomes-based programs with commercial insurers, without tripping up on federal price reporting rules. Individual state Medicaid programs already have the ability to negotiate outcomes-based agreements that don’t impact best price calculations nationwide.
“This is a tweak to Medicaid best price reporting to enable private insurers to contract more freely with drugmakers on innovative contracting models,” said Rachel Sachs, an associate professor of law at the Washington University in St. Louis, in an interview.
Sachs views the changes as “more pressing” in light of approvals for gene therapies like Roche’s blindness treatment Luxturna and Novartis’ spinal muscular atrophy drug Zolgensma, as well gene therapies expected to win approval in the near future.
In a statement, Novartis called the proposed changes an “important first step,” adding that the rulemaking is supportive of the company’s “access strategy” for Zolgensma in the U.S.
Both Luxturna and Zolgensma treat patients numbering in the hundreds or low thousands in the U.S. But some of the gene therapies in development are for diseases affecting many more people.
BioMarin Pharmaceutical’s experimental gene therapy Roctavian, for example, treats hemophilia A, which affects 14,000 people in the U.S. An approval from the Food and Drug Administration is expected by August.
In an interview Wednesday with BioPharma Dive, BioMarin’s research and development chief, Henry Fuchs, said the company is looking to soften the blow of the treatment’s price-tag, forecast to be more than $2 million.
“We have been in discussions with payers and regulators about what we believe is a novel innovative approach to risk sharing,” he said. “I think payers will come to see valrox as a good choice,” he added, referring to the drug’s shortened generic name.
The Trump administration’s proposed changes aren’t taking effect just yet. They’ll be open for public comment for 30 days, after which CMS will review, make changes and finalize. In addition to changes in price reporting, CMS also proposed tweaks to how co-pay accumulators and authorized generics impact average price calculations.