In late December 2020, the Trump Administration released a final rule designed to promote the use of value-based purchasing (VBP) arrangements between drug manufacturers and payers, including Medicaid. The final rule, released by the Centers for Medicare & Medicaid Services (CMS), also contains policies related to line extensions and copay accumulators. The incoming Biden Administration has indicated they will place a regulatory freeze on regulations released late in the Trump Administration but has not yet said whether this final rule will be affected.

CMS Finalizes Regulation to Promote Use of VBP Arrangements

With this final rule, CMS is seeking to promote the use of value-based purchasing (VBP) arrangements between payers and manufacturers. Manufacturers have often stated that current regulations, particularly those related to the ‘best price’ under the Medicaid Drug Rebate Program (MDRP), remain a hurdle due to the lack of clarity on how to report the purchase or discounting of drugs based one evidence or outcomes-based measures used in these types of agreements.

In this rule, CMS finalizes the following definition for VBP arrangements:

An arrangement or agreement intended to align pricing and/or payments to an observed or expected therapeutic or clinical value in a select population and includes (but is not limited to):

• 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; and/or
• 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.

CMS believes the definition is sufficiently broad enough to include most of the VBP structures currently available in the market and the agency has chosen not to define “substantially.” The finalized definition is very similar to what was proposed, with mostly technical changes.

States are not required to participate in VBP arrangements and those that do not will receive Medicaid rebates based on the non-VBP best prices. Manufacturers are also not required to engage in VBP arrangements.

Manufacturers Will be Allowed to Report Multiple Best Prices if Entering Into VBP Arrangements

The Social Security Act defines “best price” with respect to a single-source drug as “the lowest price available from the manufacturer during the rebate period to any wholesaler, retailer, provider, health maintenance organization, non-profit entity, or governmental entity within the U.S.” Historically, CMS has interpreted the statutory language to result in a singular “best price” for each drug.

With this final rule, CMS is expanding upon this definition to allow drug manufactures to establish multiple best prices based on applicable VBP arrangements. This means that manufacturers will be able to report price points available through the use of a VBP arrangements and price points absent a VBP arrangement. Due to public comments, the effective date of this provision was delayed to January 1, 2022.

Commenters expressed concern over issues arising when there is a small patient population, particularly when using a bundled payment approach, but CMS believes that the reporting of multiple best prices addresses this. Similarly, the agency says that the multiple best price and bundled payments approaches “accommodate” manufacturers of treatments for extremely rare disorders since these manufacturers will not face the previous rebate consequence if one patient fails on the therapy. CMS also notes that allowing reporting of multiple best prices means that the price paid in a VBP arrangement when a measure is not met for a single patient does not reset the best price for that drug in that given quarter.

If a manufacturer wants to report multiple best prices associated with VBP arrangements in the commercial market, those arrangements must be offered to states. If not offered to states, the manufacturer may only report one best price that must include all prices from VBP arrangements in the commercial market. States that do choose to enter into these VBP arrangements as part of the multiple best price approach will not be required to submit a state plan amendment (SPA). Any arrangements states wish to enter into where prices would be exempt from best price do require an SPA. Additionally, the 340B ceiling price will reflect a Medicaid drug rebate based upon the non-VBP best price.

Currently, any revisions to pricing data must be made within the 12 quarters (3 years) from which the data were due. For VBP arrangements where the outcome is evaluated outside of these 12-quarters, manufacturers will be allowed to request a change outside of this 3-year period due to the result of a VBP arrangement. CMS does not prescribe a specific amount of time outside this window for which changes to data can be made, saying they wish to provide the necessary flexibility due to the various designs VBP arrangements may take.

CMS says it is developing a new Medicaid Drug Program (MDP) system that will replace the current reporting systems. The agency believes this new system, which is expected to be available in July 2021, will help with reporting multiple best prices and VBP-related unit rebate amounts. Finally, CMS notes that this final rulemaking does not mean CMS will not consider other approaches as part of future rulemaking.

Bundled Sales Definition Expanded to Note VBP Arrangements May Qualify

“Bundled sales” are currently defined in regulation as “any arrangement regardless of physical packaging under which the rebate, discount, or other price concession is conditioned upon the purchase of the same drug, drugs of different types (that is, at the nine-digit NDC level) or another product or some other performance requirement (for example, the achievement of market share, inclusion or tier placement on a formulary), or where the resulting discounts or other price concessions are greater than those which would have been available had the bundled drugs been purchased separately or outside the bundled arrangement.”

With this final rule, CMS is expanding the definition to say that VBP arrangements may qualify as a bundled sale. A bundled sales approach may be used if the rebate or discount provided to the payer or purchaser is contingent upon a performance requirement. A VBP arrangement that does not meet the definition of a VBP arrangement (as finalized in this rule) will not be part of the bundled sale definition.

Depending on the design of any VBP arrangement, manufacturers will choose whether to use the multiple best price reporting approach or the bundled sale arrangement approach to calculating best price.

CMS Updates Regulatory Language to Reflect that Full Value of Patient Assistance Must Go to Patient to be Excluded from Best Price and AMP

Current regulations allow the value of manufacturer discount programs (“coupons”) to be excluded from “best price” and average manufacturer price (AMP) calculations when the full value of the coupon goes to the patient. However, with the introduction of copay accumulators, in which health plans do not apply the value of manufacturer patient assistance towards a patient’s deductible or out-of-pocket spending, the value of the coupons arguably no longer accrues to the patient. Instead, the value accrues to the health plan.

In this final rule, CMS finalizes revised regulatory language to provide expressly that the value of patient assistance can only be excluded from best price and AMP calculations when the manufacturer ensures the full value of the assistance is passed on to the consumer or patient. CMS says this change in regulatory language to expressly exclude these from best price and AMP calculations is necessary due to the increasing scope and number of the accumulator programs that has led to assistance not being always passed through to patients, which is an existing requirement.

Commenters had raised concerns about this policy’s impact on a manufacturer’s ability to provide assistance during the COVID-19 pandemic as well as concerns that manufacturers may not be able to ensure assistance is going to the patient as they do not always have full clarity as to when an accumulator is being used. However, CMS believes manufacturers have the ability to establish coverage criteria to ensure the benefit goes exclusively to the consumer or patient and isn’t part of an accumulator program.

CMS has chosen to delay the effective date of this policy until January 1, 2023 in response comments. CMS says this will give manufacturers time to implement a system to ensure assistance is passed on to the patients, with the agency suggesting a third-party vendor, creating coverage criteria for the use of assistance programs, or changing the structure of assistance programs to require patients pay for the drug and then have the patient collect the rebate directly from the manufacturers. The agency also believes the current electronic prescription claims process infrastructure in place “can serve as a possible foundation” for the ability to ensure assistance goes to the patient.

CMS Finalizes Definition of Line Extension and New Formulation for Rebate Purposes

The Affordable Care Act (ACA) included a provision implementing an “alternative” Medicaid rebate calculation for “line-extensions” or “new formulations” in order to assure manufacturers are not circumventing rebate liability by creating a line-extension drug to avoid inflation-based additional rebates. However, the statute gives CMS authority to define “line extension” only providing that extended-release formulations are line extensions. The agency has struggled to finalize a definition of “line-extension” and “new formulation,” complicating manufacturer calculation and reporting.

This final rule interprets a line extension to mean a new formulation of the drug that does not include an abuse-deterrent formulation of the drug. Abuse-deterrent formulations are excluded by statute. Only the initial single source drug or innovator multiple source drug (initial brand name listed drug) must be an oral solid dosage form when determining whether a drug is a line extension.

A new formulation is defined for a drug as a change to the drug, including, but not limited to: an extended release formulation or other change in release mechanism, a change in dosage form, strength, route of administration, or ingredients. Based on comments, CMS is not including new combination drugs and drug/device combinations as new formulations. A new indication accompanied by marketing as a separately identifiable drug (Such as by a different NDC) will also not be considered a new formulation. However, drugs approved for a new indication may be included as a new formulation through some other way (such as a new formulation or change in dosage form).

These definitions will be effective January 1, 2022.