CMS Releases Guidance on Multiple Best Price Reporting for Value Based Arrangements

In January 2021, we reported on a CMS rule that, among other things, revised the Medicaid rebate best price regulation to remove impediments to value-based purchasing (VBP) arrangements in Medicaid. The rule, which will go into effect on July 1, 2022, defined a VBP is “an arrangement or agreement intended to align pricing and/or payments to an observed or expected therapeutic or clinical value in a select population . . . .”   VBP pricing may be determined by outcomes-based measures, which substantially link a drug’s cost to its actual performance or a reduction in medical expenses, or by evidence-based measures, which substantially link cost to existing evidence of effectiveness and value for a specific use.  See 42 C.F.R. 447.505(a), 85 Fed. Reg. 87000, 87102 (Dec. 31, 2020).

Last week, CMS issued Manufacturer Release 116 to put flesh on the bones of the new multiple best price option, including details about the structure of VBP arrangements and the respective responsibilities of manufacturers, states, and CMS.  The arrangements are to be structured as a series of outcome-based tiers, each tier associated with a guaranteed net unit price (GNUP).  Each GNUP will be the ultimate cost to the state net of the Medicaid rebate and an additional VBP rebate.  CMS gives the following illustration for a drug whose list price is $2,000:

• If a beneficiary is undergoing treatment with the drug and is hospitalized in year one, the GNUP will be $500.
• If a beneficiary is undergoing treatment with the drug and hospitalized in year two, the GNUP will be $750.
• If the beneficiary is undergoing treatment with the drug and is hospitalized in year three, the GNUP will be $1,000.

The manufacturer will report a best price corresponding to each GNUP.  Since best price is determined by prices to commercial customers who will not receive the Medicaid rebate portion of the GNUP but may receive the VBP discount, the reported best price corresponding to each GNUP presumably is the GNUP plus the Medicaid unit rebate amount (URA), assuming that the commercial customer receives no other discounts.  The manufacturer will also report a non-VBP best price, which CMS will use to calculate the traditional URA, but CMS will not calculate the VBP rebates.  That will be left to the states, which will invoice the manufacturer separately for ordinary Medicaid rebates and the VBP rebates that the state has earned.

In order to avail itself of multiple best price reporting, a manufacturer must offer the VBP arrangement to all states.  The manufacturer will upload a description of the VBP into the Medicaid Drug Programs (MDP) reporting system, which is currently used for Medicaid price reporting.  The MDP will notify states about manufacturer VBP offers along with a summary and contact information, and it is up to an interested state to contact the manufacturer.  The manufacturer will report in MDP when it has entered into a VBP arrangement with a state.  CMS will not be involved in the review of VBP programs; the various outcomes measures, the intervals and methods for measuring them, data content and format of state invoices, frequency of invoicing, and other terms and conditions will be negotiated between the manufacturer and the state.

Ceiling prices under the 340B Drug Discount program will not be affected by VBP best prices, but instead will continue to be based on the non-VBP best price as well as average manufacturer price.  However, Medicare Part B average sales price (ASP) will include VBP discounts paid to ASP-eligible customers.

A manufacturer who wishes to offer a VBP arrangement only to commercial customers will not be able to report multiple best prices, because that  option requires that the VBP be offered to every state Medicaid program.  As discussed in our summary of  the December 2020 CMS rule (at p. 3), a manufacturer that offers a VBP arrangement only in the commercial market may instead use a bundled sale methodology whereby a discount (or full refund) on one unit of drug that failed to achieve the outcome measure, instead of setting the best price, may be allocated among all the units sold under the VBP arrangement during the quarter, reducing the cost of each one by a small amount.  However, the bundled sale methodology does not offer much best price relief when the total number of units sold during a quarter is small, such as for an orphan drug.  For such drugs, multiple best price reporting could be an attractive option, as long as the manufacturer is willing to offer the VBP to Medicaid.