The Trump Administration’s grandiose healthcare plans didn’t come to fruition, like the promised repeal and replace of the Affordable Care Act, the pledged overhaul of the prescription drug rebate system, and international price indexing for Medicare Part B (physician-administered) drugs. Yet, Secretary Azar’s Department of Health and Human Services (HHS) and Administrator Verma’s Centers for Medicare and Medicaid Services (CMS) have implemented a number of high-profile regulations that will likely have a lasting impact on the pricing and reimbursement of medical services and technologies.
For well over a decade, policymakers have declared the healthcare system is moving towards value-based pricing of medical services and technologies. Nonetheless, the movement from volume- to a value-based system of pricing has occurred at a snail’s pace, especially in the pharmaceutical and device sectors. Numerous barriers have prevented value-based pricing from being implemented; among others, the Medicaid best price rule, lack of billing and pricing transparency, and the complex and often archaic pricing and reimbursement of medical devices and diagnostics.
The Department of HHS has tackled these issues - with CMS spearheading much of the effort - and come up with a series of regulation changes.
Medicaid Best Price
In late December 2020, CMS issued a final rule change to adapt Medicaid’s best price regulation to the modern era of value-based pricing. Rather than only allowing one best price for each drug covered by Medicaid, CMS is permitting arrangements in which there can be more than one price for a drug.
In 1990, Congress established the Medicaid Drug Rebate Program. In exchange for guaranteeing their drugs are reimbursed by Medicaid, pharmaceutical manufacturers must pay rebates to states. Since 1990, the statutory Medicaid rebate ensures that states obtain rebates for brand-name drugs of 23.1% of the Average Manufacturer Price (AMP), or the difference between the AMP and the “best price,” whichever is greater. Here, best price is defined as the lowest available price to any wholesaler, retailer, or provider, excluding certain government programs, such as the Department of Veteran Affairs program.
The best price stipulation can hamper efforts by manufacturers and payers to experiment with value-based contracting arrangements. Suppose a manufacturer offers a payer a money-back guarantee in case a treatment it’s selling is ineffective. This implies the possibility of a Medicaid best price of zero dollars if the treatment fails to work, which in turn would require that the drug be given away free of charge to every state Medicaid program.
The CMS rule aims to facilitate value-based outcome deals between payers and drugmakers, which until now have seen relatively little uptake, due in part to the best price regulation barrier. The new rule, which may go into effect as soon as March 1, 2021, allows manufacturers to report multiple “best prices” for a therapy if the prices are tied to one or more value-based pricing arrangements. Specifically, in determining their best price of a product, manufacturers can “proportionally allocate the discounts provided under a value-based pricing arrangement, based on actual patient outcomes across the total dollar value of the drugs dispensed to all patients under that arrangement.” Alternatively, manufacturers may report a best price range, depending on the different discounts incorporated in the value-based pricing arrangement.
Critics of the regulation change have urged CMS to “protect and strengthen the statutory discounts drug manufacturers pay to Medicaid.” Specifically, there is concern that the changes would imply removal of guarantee best price discounts, critical to ensuring affordability of prescription drugs to the Medicaid program.
Although CMS says the intent of value-based contracting agreements is to lower drug prices, the government acknowledges this is not guaranteed. In reality, value-based contracting arrangements are not necessarily aimed at lowering prices. They’re more subtle than that; they’re about aligning price and value.
In announcing the regulation change, CMS Administrator Seema Verma has made it clear that the new rule is to be viewed as a tool which facilitates value-based pricing arrangements. These “tools shift us away from our typical negotiations around drug pricing - which are usually volume-based [towards] … having negotiations around outcomes.”
Price Transparency
From the outset of the Trump Administration, establishing price transparency has been a cornerstone of the Department of HHS’s set of strategic initiatives to improve the functioning of the healthcare marketplace.
In October 2020, HHS finalized a rule on health insurer price transparency. The rule requires most private health insurers to begin posting their negotiated rates by 2022. Secretary Azar stated that the rule applies to health plans that cover approximately 200 million Americans who will soon have “real-time access to information about negotiated prices and cost-sharing, beginning with a list of the 500 most shoppable healthcare services in 2023.” In 2024, the rule will apply to every healthcare item and service.
In addition to the shopping tool, the rule’s provisions include requiring that health plans make pricing information publicly available through three data files starting on January 1, 2022. The first file will enumerate the in-network prices for all items and services and across all healthcare providers. The second file will list pricing for out-of-network healthcare providers. Finally, the third file will post in-network prices for all prescription drugs, as well as their historical net prices, which account for rebates and other discounts health plans and pharmacy benefit managers obtain.
And, on January 1st of this year, a new CMS rule went into effect requiring hospitals to publish the prices (estimates) they negotiate with insurers for at least 300 “shoppable” various medical procedures. Previously, these prices had been proprietary. Prices (estimates) of these items must now be provided upfront in an easy-to-read format, so patients can shop around for what they perceive to be the best value.
Medicare Coverage of Innovative Technology
On January 12, 2021 CMS finalized a Medicare Coverage of Innovative Technology (MCIT) rule that seeks to eliminate the lag between Food and Drug Administration (FDA) approval of medical devices designated with “breakthrough” status, and CMS approval based on a “reasonable and necessary” determination for the purpose of Medicare coverage decisions.
The MCIT rule provides immediate Medicare coverage for all devices approved by the FDA as a “breakthrough” for an initial period of four years. During this time period, manufacturers are expected to develop robust real-world evidence. They can submit this data to CMS prior to the end of the four year period to ensure continued full coverage of their medical devices.
Critics of the MCIT rule have countered that without evidence on the impact of breakthrough devices on real-world outcomes, offering automatic coverage following FDA approval may not be warranted. It also restricts the leverage payers have since prices can be set independent of value added.
However, perhaps CMS was trying to rectify a situation in which many diagnostics and devices have faced numerous pricing and reimbursement challenges over the years; more so than prescription drugs. For molecular diagnostics, for example, cost-based reimbursement or code stacking - adding up the cost of each discrete step needed to perform a particular test - has limited the ability of manufacturers to set prices in accordance with value.
In recent years, CMS has not only approved coverage and payment for a large number of innovative medical diagnostics and devices, such as continuous glucose monitors for diabetics, it has also bolstered reimbursement rates for products deemed to be of high value. For instance, CMS has provided an add-on Medicare payment for equipment and supplies that can be used in the home for dialysis treatment of patients with End-Stage Renal Disease.
According to departing CMS Administrator, Seema Verma, the “actions CMS has taken over the last four years will revolutionize healthcare for generations to come and will transform healthcare for every American patient. They represent a true turning point and will have an enduring effect.”
It remains to be seen how revolutionary these steps are. Nevertheless, under Azar and Verma’s stewardship, HHS and CMS have pursued an ambitious policy agenda on transparency, drug pricing, and medical device reimbursement, one the Biden Administration is unlikely to abandon.
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