Dive Brief:

• The Trump administration on Monday finalized a rule meant to make it easier for state Medicaid programs, commercial insurers and drugmakers to enter into “value-based” arrangements tying prescription drug payments to clinical outcomes.

• The rule overhauls existing regulations that made structuring value-based payments difficult, the Centers for Medicare and Medicaid Services said. Under these types of deals, payers negotiate prices with drugmakers based on outcomes and evidence-based measures like reduced hospitalizations or lab visits, and aren’t accountable for the full price if those measures aren’t met.

• The changes are effective in January 2022. CMS estimates that value-based drug deals emerging in the wake of the final rule could save federal and state governments up to $228 million through 2025.

Dive Insight:

State Medicaid agencies are entitled to drugmaker rebates for prescription medicines given to beneficiaries in the safety-net program, based off of manufacturers reporting their “best price” to CMS for brand-name drugs. The best price is the lowest net price offered by a drugmaker, a figure companies have to match in selling to Medicaid or pay a statutory 23.1% rebate.

Typically, drug contracts are tied to the volume of product sold, so the more a product is prescribed, the larger the manufacturer rebate. But increasingly, drugmakers and insurers — including Medicaid — are exploring linking payments for prescription drugs to outcomes, especially given the rise in more expensive biologic drugs and gene therapies. Such deals remain a small minority of pricing agreements, however.

Manufacturers have complained that only reporting one best price makes it hard for them to structure deals with payers lowering a drug’s price depending on outcomes.

Requirements in the 30-year-old Medicaid Drug Rebate Program on rebates and related reporting have held back this push to explore new reimbursement structures, CMS Administrator Seema Verma said in a statement. Monday’s final rule changes the reporting requirements to allow multiple best prices as well as bundled contracts, and should mean drugmakers are more willing to negotiate with payers, CMS said.

The rule also finalizes a definition of a line extension for the purposes of the alternative rebate calculation in the Medicaid Drug Rebate Program, to protect Medicaid from inflation on some older drugs, CMS said.

The agency estimates the clarification will result in additional manufacturer rebates to states, saving $2.3 billion through 2025.

The final rule also clarifies some cost-sharing assistance elements in Medicaid to ensure they lower out-of-pocket costs for consumers. If discounts don’t benefit the patient and instead just lower costs for payers and pharmacy benefit managers, they need to be counted in drugmakers’ reporting to CMS for rebate purposes, the agency said.

“This change will help ensure that when patients use a copayment assistance card provided by a drug manufacturer, the value is passed through to the patient’s deductible or cost sharing obligations in full, as opposed to offsetting what the health insurance company would have to normally reimburse the pharmacy,” CMS said. The agency is delaying the change until January 2023 to give pharmaceutical companies and insurers more time to adjust.

As a result of the rule, beneficiaries of the safety-net insurance, which covers tens of millions of Americans, should benefit from better access to medications, CMS said.

Industry was critical of the rule’s proposed form released in mid-June.

Hospitals, drugmakers, insurers and Medicaid officials said its implementation timeline was too quick. Some said the rule could result in higher administrative burden for healthcare companies or less copay assistance for commercially insured patients. Pharmaceutical companies, meanwhile, warned it could have ripple effects lowering the price they’re allowed to charge hospitals in the 340B drug discount program.

Lowering drug costs has been a policy priority for President Donald Trump, though critics say his administration hasn’t delivered. Several of Trump’s actions, like an attempt to ban rebates paid to pharmacy benefit manufacturers in Medicare and another to force drugmakers to disclose prices in TV ads, were challenged in courts or rolled back.