United States: CMS Enters The Hepatitis C Drug Pricing Debate

Last Updated: November 17 2015
Article by Thomas Barker

Although outpatient prescription drugs are not a mandatory benefit under the Medicaid program, all 50 states do provide at least some coverage for prescription drugs. Manufacturers that want their drugs covered under Medicaid must agree to pay rebates to the Medicaid program (for brand name drugs, rebates must equal at least 23.1% of the average manufacturers price of the drug); must agree to participate in the 340B program; and must agree to provide federal supply schedule pricing to federal government agencies.

In exchange, States must generally cover all outpatient prescription drugs of a manufacturer that has agreed to participate in the rebate program and has signed an agreement promising to provide the rebates. States may impose some permissible limitations on coverage of outpatient drugs:

  • A state can impose a prior authorization regime for any outpatient drug, so long as response is provided within 24 hours and the system provides for the dispensing of a 72-hour supply of the drug in an emergency situation.
  • A state can restrict coverage of some drugs. For example, drugs used for a non-medically accepted indication (e.g., off-label use of a drug with no compendia support) can be excluded from coverage. As another example, certain classes of drugs (weight control agents, fertility drugs, drugs used for cosmetic purposes, vitamins, drugs used for sexual dysfunction, and drugs used to treat coughs or colds) can be excluded from coverage. Prior to the enactment of the Affordable Care Act, smoking cessation agents, benzodiazepines and barbiturates could also be excluded from coverage.
  • A state can impose a formulary. If it does so, however, a state can only restrict coverage of drugs on the formulary if, based on the drug's labeling, the drug does not have a "significant, clinically meaningful therapeutic advantage" to other drugs on the formulary. Formularies must be developed by a committee consisting of physicians and pharmacists and other health care professionals. Drugs on the formulary must be made available through a prior authorization program.

In addition to the specific requirements related to outpatient prescription drugs that are set out above, there are general requirements in the Medicaid program that a state must adhere to. For example, it must make benefits available with "reasonable promptness." It must provide benefits in the same "amount, duration, and scope" for all Medicaid beneficiaries. It must provide that benefits be provided "in the best interests of" Medicaid recipients.

All of these fundamental principles of the Medicaid program have risen to the forefront over the past two years since Food and Drug Administration (FDA) approval of the first direct acting antiviral for the treatment of the Hepatitis C virus (DAA HCV). DAA HCVs are drugs that interfere with the specific steps in the HCV replication cycle through a direct interaction with the HCV genome, polyprotein, or its polyprotein cleavage products. The new DAA HCVs result in sustained virologic response (SVR) in between 12 and 24 weeks of treatment. Once a patient has achieved SVR, the chances of the virus returning are nearly zero. As a result of the superior efficacy of these new drugs, manufacturer list prices are very high which has led to some criticism of the price by state Medicaid directors.

In important guidance issued last week, the Centers for Medicare & Medicaid Services (CMS) did its best to address these criticisms. In doing so, CMS made clear that states generally must assure access to the DAA HCV therapies to Medicaid recipients.

The letter begins by explaining the Medicaid rules for outpatient prescription drug coverage. In particular, the letter explains the requirements regarding prior authorization and formulary restrictions, and the limits on states when imposing such restrictions. The letter sums up with a broad statement by CMS: "to the extent that states provide coverage of prescription drugs, they are required to provide coverage for those covered outpatient drugs of manufacturers that have entered into, and have in effect, rebate agreements described in section 1927(b) of the Act, when such drugs are prescribed for medically accepted indications, including the new DAA HCV drugs."

CMS does acknowledge that it understands and "shares" the concerns of states that have expressed objections to the costs of the new DAA HCV therapies. However, CMS also notes that the competition in this class of drugs "may" result in downward pricing pressure and that this pressure creates incentives for states to potentially negotiate supplemental rebates with the manufacturers of the new therapies. CMS followed up the November 5 letter to states, with letters to Gilead Sciences Inc., AbbVie Inc.,Johnson & Johnson, and Merck & Co. encouraging them to develop innovative payment arrangements, such as value-based purchasing arrangements, with states. CMS has asked manufacturers to share information on such arrangements.

The letter then goes on to describe three particular state practices that, in CMS' view, are problematic under the Medicaid program. First, using a patient's Fibrosis score before authorizing access to the DAA HCV therapies. Second, some states are requiring a period of abstinence from drugs or alcohol before approving treatment. Finally, some states are requiring consultations with specific provider types (for example, hepatologists) before approving payment for the drugs. According to CMS, "the effect of such limitations should not result in the denial of access to effective, clinically appropriate and medically necessary treatments using DAA drugs for beneficiaries with chronic HCV infections." CMS then goes on to say that states should examine the restrictions that they have in place "to ensure the limitations do not unreasonably restrict coverage of certain treatment using the new DAA HCV drugs and also encourages states to design their coverage policies by referencing guidelines that states can use in designing coverage policies.

Finally, CMS notes that coverage under Medicaid managed care programs cannot be more restrictive than coverage under fee-for-service Medicaid. Thus, to the extent that Medicaid patients are enrolled in managed care plans, they are entitled to the same access rights as patients in traditional Medicaid. Therefore, Medicaid managed care plans cannot impose limitations that are more restrictive than original Medicaid.

In 1996, CMS issued a similar letter shortly after the FDA had approved the first protease inhibitors for treatment of HIV/AIDS. In some respects, last week's letter goes farther than the 1996 guidance. Comparing the two letters illustrates that many of the same pressures – the relationship of innovation to pricing – were facing state Medicaid programs in 1996 as are facing those programs today.

To view Foley Hoag's Medicaid and the Law blog please click here

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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