CMS clears Medicaid value-based drug state plan, denies closed formulary

David Lim@LimOpinion

June 28, 2018

Dive Brief:

• CMS said Wednesday that it will not approve a request by Massachusettsto use a closed formulary to exclude certain Medicaid-covered drugs. The agency said that while it appreciates the state’s effort to lower drug costs, technical changes need to be made for the proposal to be allowed.
• In a separate decision, the agency OK'd a proposal from Oklahomaallowing the state to negotiate supplemental rebate agreements for drugs in value-based purchasing arrangements with drugmakers. The plan allows Oklahoma to seek additional rebates if certain clinical outcomes are not achieved.
• CMS also sent a letter to states Wednesday clarifying guidance that drugs approved by the Food and Drug Administration under its accelerated approval pathway must be covered by state Medicaid programs if they are defined as a “covered outpatient drug.”  

Dive Insight:

There is general consensus of the promise of value-based payments to make the health system more efficient and give payers (and patients) some predictability amid sky-high price tags for new treatments. The details of such agreements are being worked out in states looking to take advantage of the administration's fondness for Medicaid waivers.

CMS lauded the Oklahoma plan as the first-ever approval of its kind. President Donald Trump’s drug pricing blueprint pointed to a value-based payment initiative as one plank of its effort to tackle drug prices.

“Oklahoma’s plan for value-based drug contracts is an important example of how states can innovate to bring down drug costs,” HHS Secretary Alex Azar said in a statement. “The Trump Administration is committed to giving states the flexibility they need to make healthcare more affordable, and strongly supports innovations like value-based purchasing for prescription drugs.”

The Oklahoma proposal is set to go into effect for drugs dispensed after Jan. 1.

CMS says that while it is supportive of Massachusetts’ effort to lower drug costs, its plan must be altered. The agency said that it would allow a similar demonstration if Massachusetts negotiated directly with drugmakers and forgoed manufacturer rebates under the federal Medicaid Drug Rebate Program.

“The state could then be provided flexibility to exclude specific drugs from coverage based on cost effectiveness or other approved criteria, or to employ a closed formulary structure similar to Medicare Part D or commercial plan formularies,” CMS wrote. “Under such an approach, the state would have to ensure that federal expenditures under the demonstration would not exceed federal expenditures incurred without the demonstration.”

Healthcare consulting firm ADVI Health Director Lindsay Bealor Greenleaf argued that had the Massachusetts proposal been approved, patients would face limited treatment options.

“By rejecting Massachusetts' 1115 waiver request to establish a closed Medicaid formulary and still receive 23.1% mandatory manufacturer rebates, the administration is protecting patients' access to critical treatments and upholding the bargain that Congress struck with states and manufacturers in the 1990s,” Greenleaf said.

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