Background

The Value-Based Purchasing (VBP) Final Rule, finalized in December 2020, will allow manufacturers to report multiple best prices (BPs) to the Centers for Medicare & Medicaid Services (CMS) for a drug if each BP is tied to a different outcome under a VBP arrangement. The reported BPs will not impact the BP for sales outside of VBP arrangements, thus avoiding impacts to manufacturers’ Medicaid rebate liability. To use this allowance, manufacturers must offer each relevant commercial VBP to state Medicaid programs. The provision was originally scheduled to launch January 1, but CMS postponed implementation by 6 months to July 1.

Recent Guidance for Manufacturers and States Plus Pricing Considerations

In March, CMS released a corresponding technical guidance to manufacturers and states providing stakeholders with considerations about price reporting requirements, availability of VBP arrangements to states via the Medicaid Drug Program (MDP) system, and expectations regarding state-level negotiations and rebating. While CMS largely reiterated information from the original rule, the guidance detailed CMS’s vision, ahead of the July 1 launch date, for manufacturers to use the MDP to work directly with state Medicaid programs on VBP adoption, data collection, and rebates. Notably, the guidance emphasized the importance for manufacturers to customize VBP approaches to individual state population needs and administrative capabilities.

To prepare, manufacturers considering adoption of the BP flexibilities will need to have a strong understanding of the MDP and VBP rule parameters and evaluate the extent to which they may be able to leverage the new flexibilities for individual product portfolios. When considering whether to pursue a VBP arrangement under the rule, manufacturers should assess the feasibility of measuring outcomes associated with a product and the extent that new data collection and reporting structures may need to be developed. Additionally, given the mandatory rebates associated with the Medicaid drug rebate program, manufacturers will need to consider gross-to-net revenue implications of any increased product utilization in the Medicaid market that is driven by VBP use.

Furthermore, manufacturers will need to account for considerations for VBP use associated with the calculation of the average sales price (ASP). In the guidance, CMS reiterated that the agency is not making any changes to ASP reporting, meaning that any price concessions provided under a VBP arrangement must be accounted for in a product’s ASP calculation.

The use of VBPs will also require manufacturers to consider Anti-Kickback Statute implications. In April, US Representatives Schrader (D-OR), Guthrie (R-KY), and Mullins (R-OK) introduced H.R.7389, entitled “The Medicaid VBPs for Patients Act.” The proposed legislation would advance VBP arrangements and reforms related to price reporting in Medicaid. If enacted, the legislation would establish a safe harbor for Anti-Kickback Statute protections for VBP arrangements; this provision is not included in the VBP final rule nor the recent guidance from CMS to manufacturers and states.

Finally, manufacturers preparing for the rule’s implementation must consider pricing impacts associated with the VBP rule in the larger context of other pricing reforms set to take effect over the coming years (see Figure 1).

Stakeholder Survey

To assess the evolving VBP landscape, Avalere conducts an annual electronic survey of US health plans and Pharmacy Benefit Managers (PBMs) representing roughly 59 million covered lives in 2021. The most recent survey was conducted between September 27 and October 8, 2021, prior to additional guidance provided by CMS for VBP arrangements.

Avalere found that 56% of respondents had executed an outcome-based contract (OBC) and 51% reported having 2 or more OBCs in place. 25% of payers with at least 1 OBC in place said that regulatory structures are a disincentive to use OBCs and a challenge related to executing them. Among payers that have used OBCs, only about half of payers have experienced or perceived cost savings as benefits of OBCs. Operational barriers likely contribute to high costs that outweigh potential savings. For example, approximately 70% of payers with at least 1 OBC in place also cited high administrative burden as an experienced challenge with implementing OBCs.

To provide additional context on how recent CMS guidance has the potential to address operational and regulatory barriers to OBCs and facilitate market adoption across a wider range of payers, Avalere will expand its current survey to include respondents from manufacturer, payer, and PBM organizations. The survey will be disseminated to stakeholders and results will be shared by the end of 2022. Furthermore, Avalere will ask stakeholders about their perspectives on potential impact of the VBP final rule and recent guidance from CMS, on price reporting flexibilities and operational challenges with submitting and negotiating VBP arrangements. The upcoming survey will also assess impacts on the likelihood of VBP execution given additional guidance provided by CMS.

How Avalere Can Help

Avalere can support clients with developing a value and pricing strategy, assessing operational challenges related to implementing OBCs, and modeling potential impact to government pricing and gross-to-net calculations across various contracting scenarios and variable patient outcomes. To explore how Avalere can help you, connect with us.