The Medicaid Drug Rebate Program and Value-Based Purchasing

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Merle M. DeLancey Jr.

On March 23, 2022, the Centers for Medicare and Medicaid Services (“CMS”) issued long-awaited guidance regarding how drug manufacturers are to report multiple best prices (“BPs”) to the Medicaid Drug Rebate Program (“MDRP”) under value-based purchasing (“VBP”) arrangements. See Manufacturer Release 116 (medicaid.gov/prescription-drugs/downloads/mfr-rel-116.pdf). CMS delayed issuing the guidance to allow states, payers, and manufacturers to administratively prepare for multiple BP reporting in connection with VBP arrangements. The regulatory amendments are effective July 1, 2022.

VBP Arrangements and Medicaid’s Best Price Rule

VBP arrangements consist of additional rebates or price concessions that states may be able to earn based on a drug’s clinical outcomes in Medicaid beneficiaries. CMS’ challenge was reconciling Medicaid’s long-standing BP reporting rule used to calculate manufacturer rebate payments to states with anticipated low prices available under VBP arrangements. Since 1991, the MDRP agreed to cover every drug a manufacturer sells regardless of price. In exchange for this unprecedented access, manufacturers agreed to pay rebates ensuring that Medicaid programs paid no more than the “best prices” paid by manufacturers’ commercial customers. Many argued that Medicaid’s BP rule prevented states from accessing innovative manufacturer programs involving cutting-edge therapies.

The Complexity of Multiple BP Reporting

The recently released reporting guidance is designed to provide manufacturers BP reporting flexibility so that they will offer, and states can take advantage of, VBP arrangements. Beginning July 1, 2022, CMS will allow manufacturers offering qualifying VBP arrangements to report multiple BPs for a single dosage form and strength of a covered outpatient drug. This is an expansion from the single BP that manufacturers currently must report. The BPs tied to VBP arrangements will not necessarily trigger a new BP for the manufacturer under the Medicaid program. To qualify under this multiple BP approach, a manufacturer must offer the VBP arrangement to all state Medicaid programs. States have the option to participate in the VBP arrangement.

Manufacturers not offering VBP arrangements, or not offering them to all states, must continue to report a single non-VBP BP. Manufacturers must offer states VBP arrangements that they offer commercially. A manufacturer is only obligated to offer states the VBP arrangement as it is structured.

CMS’ Hands-Off Approach to VBP Arrangements

CMS intends to take a “hands-off” approach to the VBP arrangements between states and manufacturers. CMS will not review or approve VBP arrangements nor generate rebate invoices for such arrangements. States will need to separately invoice manufacturers for any additional discounts or rebates, similar to the process used for supplemental rebates. CMS’ dispute resolution procedures also will not apply to VBP arrangements.

Notwithstanding this hands-off approach, CMS intends to monitor the implementation of this new policy to ensure compliance and will consider making referrals to the Office of Inspector General when it believes there are concerns with manufacturer price reporting.

Effect of Multiple BP Reporting on Other Federal Health Care Programs

Because manufacturers will continue to report a non-VBP BP when reporting multiple BPs generated from VBP arrangements, that non-VBP BP price will be used to calculate the 340B ceiling price. VBP arrangement discounted prices and concessions must be included when calculating average sales price under Medicare reporting requirements.

Disclosure of VBP Arrangements in the MDP System

Manufacturers offering VBP arrangements are required to enter descriptions of the VBP arrangement in the Medicaid Drug Program (“MDP”) system. States will be able to search all available VBP arrangements in the MDP system. After execution, the manufacturer will identify the state as a participant in the VBP arrangement by specifying the effective date of the agreement in the MDP system.

Additional CMS Guidance Forthcoming

CMS’ most recent guidance regarding VBP arrangements is just the start. The devil is in the details in terms of this new regulatory program. There will be confusion and growing pains, especially while manufacturer VBP arrangements mature and adapt. CMS understands this and contemplates updates and issuing new guidance to implement VBP arrangement multiple BP reporting. CMS intends to work with stakeholders to monitor how this new policy is implemented to assure that it is meeting the goal of making innovative therapies available to Medicaid beneficiaries. CMS is hopeful that the new policy will encourage manufacturers to offer states the VBP arrangements being offered in the commercial market as they are designed or with slight modifications, and that manufacturers will report these arrangements to CMS for state consideration.

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