Updated: Oct 27, 2020
Value-based agreements have not garnered much uptake, but could the latest CMS proposal change that?
By Dave MacDougall, Katie Devane & Jamie Sidore
On June 19, 2020 HHS published a proposed rule (“CMS-2842-P”1) that includes regulations to remove or reduce the impact that value-based agreements (VBA) can have on Average Manufacturer Price (AMP) and Medicaid Best Price. The goal of the proposed rule is to reduce regulatory hurdles that may be preventing the adoption of VBAs across the industry. Before we consider the specific regulations within the proposed rule, we would like to discuss what value based agreements are, where the greatest opportunity exists, and what other barriers have prevented greater adoption thus far. From there, we can then determine how the proposed rule may or may not impact further adoption of VBAs across the industry by reducing regulatory barriers.
VBAs: What are they?
VBAs are agreements between manufacturers and payers that tie the cost of a drug to patient outcomes. While there are a variety of types of VBAs, the focus of this article is on agreements that tie drug price to clinical endpoints (e.g., adherence, lab test result) or financial endpoints (e.g. reduction in ER costs).
More and more VBAs have become of interest within the industry as the cost of providing novel therapies has increased with continued drug discovery revolutionizing our ability to successfully treat patients for a variety of conditions. The increase in spend on drugs has placed greater emphasis on ensuring that pharmaceutical manufacturers are demonstrating value to patients and the healthcare system with the drugs they bring to market, for example in the reduction of overall health care spend. Since VBAs directly tie the cost of a drug to patient outcomes, they provide a mechanism that ensure manufacturers are demonstrating this value.
VBAs: Where is the opportunity to implement?
While these types of agreements make sense on paper, challenges in implementation make understanding where VBAs offer the greatest opportunity critical. Opportunity in this instance is defined as where VBAs could drive value for patients (improved outcomes, lower costs) and manufacturers (improved access and incremental net revenue).
When evaluating potential opportunity for VBAs, several key questions focused on product and market attributes are particularly helpful. The decision tree illustrated in Figure 1 shows a simple means to quickly consider if VBAs present an opportunity for a given brand. For example, established brands which are also market leaders would likely see little to no opportunity for VBAs, as these brands typically have entrenched rebate-based contracts in place providing access and little incentive to transition to VBAs. For established non-market leaders, VBAs may present an opportunity to gain access especially for innovative brands looking to stand behind their brand’s value proposition. For new market entrants, VBAs present greater opportunity regardless of market dynamics, but this opportunity may be more limited in competitive markets for brands with limited differentiation that may be forced to compete based on rebate-based contracts.
VBAs: What are the barriers?
As demonstrated, ample opportunity does exist for VBAs but in practice these types of agreements have faced numerous barriers to implementation which has limited their use. Key issues include operational, regulatory, and patient benefit challenges:
VBAs: What are the barriers?
As noted, the proposed rule published on June 19, 2020 by HHS seeks to remove or reduce the impact VBAs have on AMP and Best Price, one of the key hurdles to VBA adoption. Currently, pharmaceutical manufacturers enter into agreements with CMS to cover outpatient drugs and agree to pay a rebate to Medicaid for prescriptions based on the “best price” the manufacturer gives on the product (i.e., the Medicaid Drug Rebate Program (MDRP)). This has presented a barrier to VBA adoption because a single discount by a manufacturer in a VBA could increase Medicaid and 340b rebates substantially (e.g., penny pricing). As an extreme example, if a manufacturer were to provide a rebate to a payer for the full cost of a drug for patients where the drug does not meet an agreed upon endpoint, the full cost VBA discount on this single claim would push Best Price to penny pricing.
In the proposed rule CMS seeks to change the approach to calculating AMP/Best Price when a VBA is present. CMS has requested feedback on two potential approaches:
1. Recognize VBA sales as “Bundled Sales”:
Manufacturers would report Best Price as the average net price for the entire quantity of the product in the ‘bundled sale’ agreement
For VBA agreements this would lead to an average discount associated with all the units reimbursed for the payer’s beneficiaries and eliminate the risk of a single claim based discount driving AMP/Best Price implications
2. Manufacturers Report Multiple Best Price Values:
A non-VBA Best Price and a VBA-based best price would be reported
Medicaid would have the option to receive the non-VBA Best Price or participate in the VBA by the manufacturer and receive a discount based on the VBA terms
While the rule seeks to incentivize VBAs by eliminating an existing regulatory hurdle, the proposal is vague, with many details remaining to be ironed out. For example, how is an approach of multiple Best Prices expected to be implemented and managed, given the vastly more challenging reporting process it will create? Additionally, if Medicaid plans have the option to adopt VBA agreements implemented by a brand, would manufacturers be required to provide Medicaid plans with access to VBA terms from all existing agreements? Finally, how transparent would the process be given that current VBA terms are confidential unless disclosed by manufacturers voluntarily?
VBAs: Where do we land?
In addition to the proposed alternatives to recalculating Best Price, CMS is also proposing to extend the period of time for making adjustments to Best Price (i.e., >3 years). These changes address two of the three regulatory challenges described earlier in this summary and are big steps towards enabling manufacturers to implement VBAs. However, even with some of the regulatory hurdles being addressed, many of the other operational issues outlined remain a significant challenge that will continue to deter broad use of VBAs.
We are advising our clients to participate in the dialogue and help shape the approach to incentivize VBAs and eliminate barriers to adoption. Likely this will require substantially more discussion to determine an approach that is feasible and lowers the barriers to entering into VBA agreement beyond just the implications regarding AMP/Best Price. More specifically, we recommend:
For clients with existing VBAs in place, we recommend:
For clients who have yet to implement VBAs, we recommend:
Hayden Consulting Group
HaydenCG is the life sciences industry's premier Market Access and Commercialization strategic consultancy. Our focus is to deliver game-changing strategic guidance and analytical vision to transform the commercial trajectory of therapies, portfolios, and entire companies. Our services are designed to create competitive advantages, establish strong analytical foundations, build growth plans, and address BioPharma’s most pressing Access, Reimbursement, Policy, and Commercialization challenges. Follow us on LinkedIn.
Dave MacDougall, Managing Director DMacdougall@HaydenCG.com
Jamie Sidore, Managing Director JSidore@HaydenCG.com
Katie Devane, Principal KDevane@HaydenCG.com
Hayden Consulting Group and Riparian have partnered to create this Whitepaper series around the Proposed Final Rule for “Medicaid Drug Rebates and Third-Party Liability Requirements”
July 2020: The Proposed Rule and Medicaid Best Price
· Riparian LLC - Patient Assistance Programs Off-Limits?
· Hayden Consulting Group - Accumulating Risk
August 2020: Impact on Value-Based Contracts
· Riparian LLC - Multiple Best Price Points Contemplated
· Hayden Consulting Group - Valuing Outcomes
TBD: Final Rule Publication
· Riparian LLC - Pending Publication
· Hayden Consulting Group - Pending Publication
Download this white paper (pdf)
Medicaid Program; Establishing Minimum Standards in Medicaid State Drug Utilization Review (DUR) and Supporting Value-Based Purchasing (VBP) for Drugs Covered in Medicaid, Revising Medicaid Drug Rebate and Third Party Liability (TPL) Requirements, CMS-2482-P, June 19, 2020, pages 37286-37322