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Proposed ‘Kitchen Sink’ Medicaid Rule Could Bring Changes for Pharmaceutical Manufacturers

The Centers for Medicare & Medicaid Services (CMS) published a Proposed Rule on June 19, 2020 (the Proposed Rule) which, among other things, suggests updates to Medicaid policies and practices related to drug pricing and value-based purchasing (VBP), clarifies the treatment of manufacturer coupons or co-pay cards in the Average Manufacturer Price (AMP) calculation and Best Price determination, and proposes changes to Medicaid drug utilization reviews (DUR) related to opioids. Comments on the Proposed Rule are due to CMS by July 20, 2020.

Recognizing VBP and Impact on Price Reporting

The Proposed Rule recognizes that in the decades since the beginning of the Medicaid Drug Rebate Program (MDRP) and adoption of related price reporting rules, “CMS has not addressed the possible impact of offering VBP arrangements on manufacturer compliance with applicable MDRP price reporting obligations, including best price and AMP [average manufacturer price] reporting.” Specifically, by addressing price reporting issues that are unique to VBP arrangements, CMS hopes that manufacturers will be more willing to enter into unique arrangements that determine price on clinical evidence and/or outcomes-based measures.

CMS recognizes that one main hurdle raised by manufacturers relates to best price reporting, which under current practice assumes that only one best price can be calculated for a single drug sold under “any pricing structure.” The Proposed Rule would expand the interpretation of the Medicaid best price regulation found at 42 C.F.R. 447.505 to recognize the reality that “because VBP and other innovative payment arrangements sometimes result in various price points for a dosage form and strength of a single drug or therapy being available in a quarter… a single drug may be available at multiple price points, each of which may establish a ‘best price’ based on the relevant or applicable VBP arrangement and patient evidence-based or outcome-based measures.” It’s unclear exactly what CMS is proposing related to multiple best price points, but CMS is seemingly suggesting some sort of allocation and/or averaging to arrive at best price when a VBP arrangement might result in the lowest price of a drug.

The Proposed Rule would add a new definition of “value based purchasing”: “an arrangement or agreement intended to align pricing and/or payments to an observed or expected therapeutic or clinical value in a population (that is, outcomes relative to costs) and includes (but is not limited to): (1) Evidence-based measures, which substantially link the cost of a drug product to existing evidence of effectiveness and potential value for specific uses of that product; or (2) Outcomes-based measures, which substantially link payment for the drug to that of the drug’s actual performance in a patient or a population, or a reduction in other medical expenses.” When determining a drug’s best price, the regulation at 42 C.F.R. 447.505 would be revised to include a statement that, “the lowest price available from a manufacturer may include varying best price points for a single dosage form and strength as a result of a value based purchasing arrangement (as defined at § 447.502).”

Death to Manufacturer Coupons/Co-Pay Cards?

The Proposed Rule also addresses the impact of co-pay accumulator programs on a manufacturer’s responsibilities in determining best price. Generally speaking, manufacturer-sponsored coupons and co-pay cards, which cover all or part of the cost-sharing that would otherwise be the patient’s responsibility, are excluded from best price to the extent the full value of manufacturer financial assistance under such programs are to the patient, with no other party receiving a price concession.

However, it is the current practice of some pharmacy benefit managers (PBM) on behalf of the insurance plans with whom they contract to utilize “copay accumulators” to ensure that any copay assistance programs ultimately benefit the plan, rather than the patient. Under a “copay accumulator,” the value of any copay assistance that a patient may receive directly from a drug manufacturer does not count toward the patient’s deductible or maximum out of pocket payment limit under their health plan.

The Proposed Rule would put direct responsibility on the manufacturer to ensure that the exclusions from best price only apply “to the extent the manufacturer ensures the full value of the assistance or benefit is passed on to the consumer or patient [since CMS] believe[s] manufacturers have the ability to establish coverage criteria around their manufacturer assistance programs to ensure the benefit goes exclusively to the consumer or patient.” In other words, manufacturers would be required to include the value of co-pay cards and coupons in best price if the card or coupon was utilized by a patient covered under a health plan with a copay accumulator program. Since drug manufacturers do not know if a given patient’s plan has a copay accumulator, manufacturers likely would just assume at least one patient that used the co-pay card/coupon was enrolled in a plan with a co-pay accumulator and consider the co-pay card/coupon value in best price. Given the potential financial impact to manufacturers related to setting new, lower best prices, if the rule is finalized we may see co-pay card availability vanishing or at least diminishing.

This proposal is sure to draw numerous comments from the industry in terms of practical application and operation, as well as broader arguments regarding the use, necessity, and viability of manufacturer copay cards and coupons.

Line Extension Definition

The Affordable Care Act prescribed that the rebate due from pharmaceutical manufacturers on drugs that are line extensions (e.g., a new formulation of a drug such as an extended-release formulation) of a single source drug or an innovator multiple source drug that is an oral solid dosage form be the higher of the rebate computed under the MDRP statute and applicable implementing regulations, or the product of: (1) the AMP of the line extension plus the highest additional rebate, calculated as a percentage of AMP, for any strength of the original single source drug or innovator multiple source drug, and (2) the total number of units of each dosage form and strength of the line extension product paid for by a state during the rebate period. CMS proposed but never finalized a definition of “line extension” in regulation.

CMS proposes a new definition of a “line extension”: “a new formulation of the drug, but does not include an abuse-deterrent formulation of the drug (as determined by the Secretary).” CMS also proposes a definition of “new formulation”: “any change to the drug, provided that the new formulation contains at least one active ingredient in common with the initial brand name listed drug. New formulations include, but are not limited to: extended release formulations; changes in dosage form, strength, route of administration, ingredients, pharmacodynamics, or pharmacokinetic properties; changes in indication accompanied by marketing as a separately identifiable drug (for example, a different NDC); and combination drugs, such as a drug that is a combination of two or more drugs or a drug that is a combination of a drug and device.” CMS reiterated as it has previously that a manufacturer is not required to calculate the alternative line extension unit rebate amount unless the manufacturer manufactures both the original product and the line extension or has a corporate relationship with the manufacturer of the original product.

The proposed definition is quite broad and if adopted would likely lead to more covered outpatient drugs being subject to the higher line extension rebate.

Proposed Minimum Standards for DUR Programs

Finally, the Proposed Rule sets forth basic minimum standards to be implemented through Medicaid DUR programs nationwide to help ensure that prescriptions are appropriate, medically necessary, and aligned with current standards of care, pursuant to sections of the SUPPORT for Patients and Communities Act.

The proposed minimum standards would include safety edits to impose limits on days’ supply for opioid naïve beneficiaries; opioid quantity limits; therapeutic duplication limitations; and early fill limitations. Additional safety edits must be adopted to impose maximum limits on daily morphine equivalent dispensing. States must also perform automated claims reviews for patients prescribed opioids over a certain limit, and must also perform concurrent utilization reviews to prevent patients from being prescribed opioids in tandem with benzodiazepines, and to review patients prescribed opioids in tandem with antipsychotics.

We encourage pharmaceutical manufacturers and other stakeholders to take the opportunity to submit comments related to the Proposed Rule, which are due to CMS by July 20, 2020.

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