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Oklahoma Is the Place to Be . . . Especially for Value-Based Contracting

“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.” – HHS Secretary Alex Azar

On May 11, 2018, President Trump released the American Patients First Blueprint, a plan to lower drug prices and reduce beneficiary out-of-pocket spending on drugs in the Medicare program. The Blueprint builds upon a trio of documents released earlier in 2018 that together provide the framework for a multifaceted approach that the administration believes can reduce spending on prescription drugs in the United States while continuing to encourage growth and innovation. In the Blueprint, President Trump directed the US Department of Health and Human Services (HHS) to develop demonstration projects to test innovative ways to encourage value-based care and lower drug prices. This article—the latest in a series investigating the president’s drug pricing plans—takes a closer look at Oklahoma’s recently approved State Plan Amendment that allows Oklahoma to negotiate value-based contracts with drug makers for individuals covered by the state’s Medicaid plan.

In a 2016 report, the Medicaid and CHIP Payment and Access Commission estimated that Medicaid drug rebates saved the Medicaid program more than $13 billion in 2014. Many state Medicaid programs have supplemental rebate agreements (SRAs) under which state programs can receive rebates in excess of those collected under the National Medicaid Rebate Agreement, further lowering state expenditures on Medicaid covered outpatient drugs. SRAs are approved by the Centers for Medicare and Medicaid Services (CMS), and rebate amounts are shared between the state and the federal government. CMS reports that all but four states (Hawaii, New Jersey, New Mexico and South Dakota) have some type of SRA in effect.

With the recently approved change, the Oklahoma SRA will allow the state to negotiate with manufacturers to obtain additional rebates based in part on performance and outcomes benchmarks. Under these voluntary agreements, manufacturers would pay additional rebates to the Oklahoma Medicaid program for drugs that fail to meet pre-determined clinical outcome standards. Under the plan, the state and the drug manufacturers will jointly agree to both the clinical outcomes benchmarks and the populations that would be used to measure the clinical outcomes of the drug therapy. This is important because prior to the Oklahoma SRA, there were concerns that outcomes-based rebates could have negative effects on price reporting, such as Medicaid Best Price levels, which could trigger higher rebates outside of the outcomes-based benchmarks.

It is unclear how drug manufacturers will react to the approval of this SRA. In 2016, CMS proposed a sweeping demonstration that would have implemented a number of payment reforms to Medicare Part B drug payment. Included in this Part B Drug Demonstration was a discussion of how Medicare could apply outcomes- or value-based pricing for drugs administered by a physician to Medicare patients. The demonstration was roundly criticized by stakeholders and was eventually withdrawn from consideration.

© 2018 McDermott Will & Emery

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About this Author

John Warren Senior Director McDermott Plus
Senior Director

John Warren is a highly experienced Medicare veteran with wide ranging experience in traditional Medicare fee-for-service, Medicare program integrity, and Medicare contracting issues.  With over 22 years of experience inside the Centers for Medicare and Medicaid Services (CMS), John brings a unique perspective to clients of all types and sizes.  As the former CMS director of the Divisions responsible for payment policy and program integrity, John is uniquely qualified to speak on matters related to Medicare payment for clinical laboratory services, Part B prescription...

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