United States: MACPAC Discusses Drug Pricing And Value-based Contracting With Key Stakeholders

Last Updated: December 21 2018
Article by Erik L. Schulwolf

On December 13, 2018, the Medicaid and CHIP Payment and Access Commission (MACPAC) held its December 2018 public meeting.

Dr. Paul Jeffrey, the Director of Pharmacy for MassHealth, spoke on MassHealth's drug pricing approach, in particular with respect to a drug pipeline he described as "alarming" in terms of cost but "sensational" in terms of potential impact. Although Dr. Jeffrey suggested that implementing a closed formulary would require waiver authority (which CMS denied Massachusetts last year), the approach he described would involve attempted negotiation of rebates with manufacturers based on "cost-effective" target prices. If agreement could be reached, manufacturers could be subjected to disclosure requirements, public hearings, and/or penalties. Dr. Jeffrey noted that a change in state law would be needed to implement these changes (a similar proposal was contained in state legislation proposed by Governor Charles Baker's administration earlier this year, which failed to pass). Dr. Jeffrey also discussed MassHealth's program of carving out reimbursement for certain new cell and gene therapies from bundled payments made to hospitals for the cost and administration of these new products in the inpatient and outpatient settings.

The other speaker on State Innovations in Drug Pricing was Dr. Rebekah Gee, the Secretary of the Louisiana Department of Health. Secretary Gee discussed Louisiana's subscription model in Medicaid and Corrections for Hepatitis C drugs. Commission discussion on State Innovations in Drug Pricing dealt with a variety of topics, one of which was whether changes in Medicaid Best Price were advisable to provide more room for value-based arrangements.

Finally, MACPAC staff gave a report on network adequacy standards and requirements in various state Medicaid managed care programs. In general, state contracts and quality strategies include information on program expectations but less on oversight and performance metrics. Below is a summary of key points from the sessions on: (1) State Innovations in Drug Pricing and (2) Network Adequacy in Managed Care.

State Innovations in Drug Pricing

Dr. Paul Jeffrey, Director of Pharmacy, MassHealth

Background and the Massachusetts 2017 Section 1115 Waiver

  • Jeffrey noted that pharmacy spending in MassHealth has doubled over a short time, and the trend is expected to continue. He described drugs in the pipeline as "alarming" in terms of cost but "sensational" in terms of potential impact.
  • He discussed some of the limitations faced by MassHealth in negotiating prices for drugs, including the need to follow state procurement rules when negotiating rebates and the program's inability to establish a closed formulary due to federal Medicaid requirements.
  • Jeffrey recounted Massachusetts' attempt to secure a Section 1115 waiver from the Centers for Medicare & Medicaid Services (CMS) to implement a closed formulary, as well as the significant stakeholder feedback on the proposed waiver. Dr. Jeffrey stated that the objective of the waiver was to enable MassHealth to negotiate a value-based net cost for drugs. This waiver request was denied.

Value-Based Purchasing Proposal

  • Jeffrey stated that MassHealth would continue with its strategy to attempt to negotiate drug prices with manufacturers and would request legislative tools from the Massachusetts Legislature to do so more efficiently (such as eliminating the requirement to follow the procurement laws when negotiating rebates).
  • Jeffrey described a three-step "value-based purchasing proposal," which would likely have to be implemented through state legislation and, specifically with respect to the proposed formulary exclusion, through a waiver from CMS.
    • Step 1: Direct Negotiation. MassHealth would negotiate directly with manufacturers based on a cost-effective target price. Jeffrey stated that he anticipated working with an independent third-party to develop target prices, mentioning in particular the Institute for Clinical and Economic Review (ICER). He noted that he also anticipates increased use of outcome-based arrangements moving forward.
    • Step 2: If MassHealth is unable to reach an agreement with a manufacturer, the manufacturer would be required to disclose information about its pricing approach. Dr. Jeffrey stated that the manufacturer could also be required to provide testimony at a public hearing and/or subjected to sanctions, including monetary sanctions.
    • Step 3: Formulary Exclusion. According to Dr. Jeffrey's presentation, a formulary exclusion would only be imposed if there is no agreement with the manufacturer after the first two steps, the drug has no proven efficacy, and the drug is excluded by the Massachusetts' employees' PBM and at least one "large national PBM." Importantly, in his remarks Dr. Jeffrey stated that formulary exclusion would require a waiver from CMS.
  • Asked how the process would work, Dr. Jeffrey gave the example of a drug with a WAC of $400K. MassHealth through its internal process and external parties calculates that the drug should be priced at $200K. MassHealth asks the manufacturer to commit to a 50% rebate. If MassHealth and the manufacturer cannot come to agreement (even if MassHealth is required to cover the drug under federal Medicaid rules), MassHealth could refer the manufacturer to a deliberative body to justify its approach, and/or subject them to penalties. He mentioned fines of $200K per patient as a potential penalty in that hypothetical.

Cell and Gene Therapy

  • Jeffrey also discussed MassHealth's payment strategy (approved in June 2018 as part of its State Plan Amendment) for new-to-market cell and gene therapies, involving carving these drugs out of bundled payments to hospitals in the inpatient and outpatient contexts.
  • Jeffrey expressed the view that this approach has several benefits, including:
    • Allowing for better therapy management through prior authorization and other utilization management techniques;
    • Enabling direct negotiation between payers and manufacturers, making it easier to develop outcome/value-based arrangements; and
    • Causing therapies to be designated as "covered outpatient drugs" due to the definition of that term in the federal Medicaid statute, making them subject to rebates.
  • In response to questions, Dr. Jeffrey returned to the issue of how to pay for curative genetic therapies, noting the multimillion-dollar price of AveXis' spinal muscular atrophy drug in development. He stated that although some private payers may be looking at amortized payments, it is not clear that Medicaid can do this. Jeffrey noted that the drug pipeline includes many such drugs, and that some of them will hit the market in 2019.

Accelerated Approval Drugs

  • In response to a question, Dr. Jeffrey expressed concern about accelerated approval drugs that come to market without evidence of efficacy. CMS policy is that these drugs must be covered by state Medicaid plans and are subject to the rebate regime. Jeffrey stated that these drugs do not always complete their efficacy testing.
  • He suggested potential approaches including increased rebates until drugs complete efficacy testing or a penalty for drugs that do not complete efficacy testing. Governor Baker had previously included such an approach in his Section 1115 waiver application for a closed formulary.

Dr. Rebekah Gee, Secretary, Louisiana Department of Health

Subscription Model for Hepatitis C Drugs

  • Gee described the "subscription model" established in Louisiana Medicaid and in the Louisiana Department of Corrections for purchasing Hepatitis C drugs.
  • The basic structure of the model is that the state will pay a flat fee to a manufacturer (based on bids) for unlimited access to Hepatitis C drugs. Gee stated that the state planned to use a similar model leveraging the 340B program for inmates in the care of the Department of Corrections.
  • Gee detailed the process by which the state looked at other approaches to accessibility and consulted with thought leaders including Dr. Peter Bach. She noted that one approach considered, but ruled out, was urging the federal government to use a federal law permitting manufacture of a patented product by or for the United States (28 USC 1498) to produce Hepatitis C drugs.
  • Gee stated that Louisiana was currently negotiating with CMS on its subscription model, and talks are going well, with many companies in support.

Best Price

  • Gee noted that both PhRMA and certain manufacturers have raised the issue of how best price will be affected by the subscription model. Dr. Gee believes that there are workarounds to best price, such as supplemental rebates and 340B, and that there is likely no need for a Section 1115 waiver for the subscription model.

Questions and Responses

  • Percentage Drug Rebate Risk.
    • One Commission member noted that states generally do not want to risk all the savings associated with the Medicaid Drug Rebate Program, but asked Dr. Jeffrey's opinion on placing a percentage of those savings at risk in exchange for more flexibility.
    • Jeffrey responded that he was not sure how that would work in practice, but that MassHealth would be open to any alternative arrangement that is in the best interests of Massachusetts.
  • Managed Care.
    • One Commission member asked how these innovations were being incorporated into managed care.
    • Jeffrey stated that where MassHealth has a preferred drug list, the state requires Medicaid MCOs to adopt the list. He noted that MassHealth would contemplate doing that for outcomes-based contracts. MassHealth has not imposed separate payment for gene and cell therapies on Accountable Care Organizations.
  • Commercial Payers.
    • A Commission member asked about the extent to which there was engagement with in-state commercial payers.
    • Jeffrey said that he was not aware of discussions with private payers, but noted that there are discussions at the Massachusetts Institute of Technology's "NEW Drug Development ParadIGmS" (NEWDIGS) program that could include both commercial payers and Medicaid. He also distinguished commercial payers' ability to use cost sharing to drive drug choice; although that is not available to MassHealth, the agency does make significant use of prior authorization.
    • Gee noted that BlueCross BlueShield is a leading commercial payer in Louisiana and that the Department has a good relationship with the BCBS plan, but indicated that the Department was concerned that working too closely with a private insurer on the subscription model might be problematic for pharmaceutical companies. She also noted that Hepatitis C is a bigger issue for Medicaid with its lower-income population.
  • Recommended Changes to Medicaid Statute/Medicaid Drug Rebate Program.
    • A Commission member asked about recommended changes to the Medicaid statute and Medicaid Drug Rebate Program.
    • Jeffrey noted the entrenched nature of rebate-based payment and expressed caution about unintended consequences of reforms. Dr. Jeffrey said that states need more latitude to construct outcomes-based arrangements, but there has been movement in providing them with this latitude. He noted that it would be helpful to see some support from the federal government on the value of medication, but noted that it is a third rail.
    • Gee mentioned recommendations from the National Academy of Medicine and programs providing vaccines to children as models to consider. She recommended focusing on access to PrEP, Hepatitis C, and opioids. She argued that the key was to protect access without harming innovation. Dr. Gee disagreed with the view that any drug pricing policy that could impact pharmaceutical company profits may dry up funding available for new innovations, and noted that the intent is not to remove incentives to develop cures.
  • Coverage Criteria.
    • A Commission member asked how coverage criteria were determined especially where there has been less evidence of efficacy developed.
    • Jeffrey said that MassHealth comprehensively reviews the FDA label and the clinical literature on a drug-by-drug basis. He noted RADICAVA for ALS as an example of this approach.
    • Gee noted the more limited resources of Louisiana, and stated that they have a supplemental rebate vendor.

Committee Discussion

Potential Legislative Developments

  • Alan Weil stated that there may be a significant debate about drug pricing in the next Congress. He noted that Medicaid cannot do what needs to be done alone, but took the position that MACPAC should not be absent from the debate or "shy away from the big stuff."

Different Rebate Model/Best Price

  • Chairwoman Penny Thompson suggested that for some drugs there may be a need to transition to a different rebate model.
  • Christopher Gorton disagreed, opining that changing the rebate program was probably not the answer. He suggested tweaking the best price paradigm so it stays in place for the vast majority of situations where it works, but excludes value-based arrangements.
  • Darin Gordon likewise broached the idea of recommending a safe harbor for best price for certain value-based arrangements
  • Weil took the position that supplemental rebates and the rebate system in general are not related to value because they are based on arbitrary prices.
  • The Chairwoman asked whether there was an approach that could allow for segmenting the risk of leaving the Medicaid Drug Rebate Program
  • Martha Carter took the position that it was sensible to have a different pricing and rebate model for curative drugs because they are a different value proposition for manufacturers.

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

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