Challenge for NY requirement for manufacturers to pay additional rebates if drug costs exceed Medicare cap.

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June 29, 2018


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Editor’s Note: Next week, Health Policy Weekly will be on hiatus for the holiday. Happy Independence Day, and we’ll see you back here for our July 13 edition.


Batten Down the Hatches: NY Medicaid Battles Vertex


A 2017 law permits New York Medicaid to cap drug costs by requesting supplemental rebates for high-cost medications identified as being priced too high even with the federally mandated rebate. Federal law requires states to cover drugs discounted at least 23% by manufacturers, but New York Medicaid can limit their use. Under the New York law, Medicaid can require manufacturers that fail to comply with discount requests to disclose details regarding how price is set, including:

  • Actual cost of developing, manufacturing, producing (including the cost per dose of production), and distributing the drug
  • Research and development costs of the drug, including payments to predecessor entities conducting research and development, such as biotechnology companies, universities and medical schools, and private research institutions
  • Administrative, marketing, and advertising costs for the drug, apportioned by marketing activities that are directed to consumers, marketing activities that are directed to prescribers, and the total cost of all marketing and advertising directed primarily to consumers and prescribers in New York, including but not limited to prescriber detailing, copayment discount programs, and direct-to-consumer marketing
  • Extent of utilization of the drug
  • Prices for the drug that are charged to purchasers outside the US
  • Prices charged to typical purchasers in the state, including but not limited to pharmacies, pharmacy chains, pharmacy wholesalers, or other direct purchasers
  • Average rebates and discounts provided per payer type in the state
  • Average profit margin of each drug over the prior 5-year period and the projected profit margin anticipated for such drug

Thus far, New York has secured roughly $60 million in annual savings from 30 drugs identified as “high cost.” In April, its drug utilization review (DUR) board recommended a supplemental rebate of about 70% on the $272,000 annual cost of ORKAMBI (lumacaftor/ivacaftor), manufactured by Vertex Pharmaceuticals. The DUR board members made their recommendation based on an Institute of Clinical and Economic Review (ICER) report and value assessment on cystic fibrosis transmembrane conductance regulator (CFTR) modulator drugs, including ORKAMBI.

If Vertex and the state do not come to an agreement, Medicaid may add prior authorization for ORKAMBI, require Medicaid managed care plans to remove ORKAMBI from their formularies, and/or promote the use of alternate cost-effective and clinically appropriate drugs.

While the supplemental rebate is debated between Vertex and NY Medicaid, patients are without access to ORKAMBI. Given that many cystic fibrosis patients are disabled and receiving Medicare benefits in addition to state Medicaid assistance, independent charitable copay foundations have been the last resort for additional help with costs. In some cases, this help is not available if income thresholds are exceeded.


Dredging a New Safe Harbor


Value-based payment may be getting an easement; this week, we got word the push for an anti-kickback safe harbor may be thrown a lifeline through proposed guidelines.

While testifying before the Senate Finance Committee, Health and Human Services (HHS) Secretary Alex Azar stated that HHS is rewriting safe harbor guidelines for anti-kickback restrictions to let manufacturers base the price of their drugs on their effectiveness.

Inside Health Policy reported that, also on Tuesday, Tina Olson Grande, Senior Vice President for Policy at the Healthcare Leadership Council, said at a separate event that she had heard the Inspector General is preparing to release a request for information on whether value-based pay contracts should be covered by safe harbors to anti-kickback restrictions.

Easing anti-kickback restrictions for value-based contracts could cause those efforts to proliferate, as manufacturers are leery of such contracts lowering prices paid to insurers that would lower best price, thus triggering additional rebates to state Medicaid programs.


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Full to the Gunwales: Dems Argue Blueprint Failures


Democrats on the Senate Finance Committee, led by Ranking Member Ron Wyden (D-OR), released a report outlining the causes and consequences of high drug prices in Medicare, focusing on Parts B and D drug delivery and payment. In his press release introducing the report, Wyden offered a jab at the Trump Administration, stating how it “continues to fall short on the president’s promise to deliver lower drug prices.”

The report explores the use of financial incentives (eg, rebates and discounts) among manufacturers, pharmacy benefit managers (PBMs), Part D plans, and pharmacies, and how the incentives can have adverse impacts to consumers.

The report also describes “certain policies and financial arrangements [that] warrant greater scrutiny for their roles in driving higher drug prices in the market at the expense of patients”:

This report is a good indicator of arguments Democrats will use this election season. Drug prices and costs have proven to be a lightning rod for a sizable portion of the population, and President Trump’s blueprint failed to incorporate 2 policies most desired by the more interventionist stakeholders and consumers: government authority to negotiate drug prices and drug re-importation.


Legislative Byte

  • Sen. Claire McCaskill (D-MO) introduced the Pharmaceutical Origin Transparency Act (S. 3105) that would require drug manufacturers to make publicly available the names of countries where their drugs are manufactured.

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Shiver Me Timbers: Medicaid Activity in the Offing


Pre-holiday flurry? On Wednesday, in addition to notices to Massachusetts and Oklahoma regarding their state Medicaid programs, the Centers for Medicare & Medicaid Services (CMS) said state Medicaid programs must cover pharmaceuticals approved under the Food and Drug Administration’s (FDA) accelerated approval pathway, if the drug meets the definition of “covered outpatient drug.”

Under the accelerated approval pathway, the FDA will approve drugs for serious conditions that would fill an unmet medical need based on a surrogate endpoint—a marker thought to predict a clinical benefit—rather than demonstrating the clinical benefit.

CMS said that biologics approved through an accelerated pathway would also fall under the definition of covered outpatient drugs, although vaccines do not.

CMS also announced 2 state decisions. Oklahoma’s Medicaid program is the first to win approval from CMS to negotiate supplemental rebate agreements (SRAs) involving value-based purchasing (VBP) arrangements with drug manufacturers, with the goal of producing extra rebates for the state if clinical outcomes are not met.

Oklahoma sought assurance that a value-based payment model developed via a supplemental rebate would not result in a new best price, which would dampen—if not outright discourage—manufacturers from entering VBP arrangements with the state.

Separately, CMS denied an application from Massachusetts requesting the authority to exclude certain Medicaid-covered outpatient drugs through a closed formulary, a request that had received pushback from the pharmaceutical industry, disease groups, and the state’s congressional delegation. In its letter to Massachusetts, CMS said the waiver request did not meet the approval requirements, but reiterated, “CMS supports the state’s goal of lowering drug costs, and will continue to provide technical assistance on options to test innovative drug coverage mechanisms.”

CMS added it would be willing to consider a demonstration that would let the state exclude coverage of certain drugs, as long as Massachusetts negotiated directly with drug companies and opted out of the Medicaid rebate program.

As states continue to explore innovative drug coverage mechanisms, it will be important to understand the specifics of each request, how CMS responds, and, if approved, how the payer landscape may be affected. Manufacturers will need to remain current on further requests in this area as these have direct implications on how pharmaceuticals are accessed and reimbursed.


Giving a Wide Berth to the (So Far Unrealized) Potential of VBP Models


On Monday, the Healthcare Financial Management Association released results of a study evaluating the impact of value-based payment (VBP) models. With national healthcare expenditures rising, coupled with less-than-proportionate improvement in health outcomes, alternative payment models (APMs) offer a risk-based approach to attempting to reduce costs and deliver high-quality, value-based care.

The study evaluated commercial and Medicare cost data of VBP models taken from 2012–2014 and 2007–2015, respectively. Analysis shows that VBP models have not had a significant impact in reducing the growth in total cost of care or in improving clinical outcomes. The study attributes these results to several factors:

  • VBP models are a relatively new methodology of reimbursement in a heavily fee-for-service (FFS)-driven market, and the study was conducted before the effects have been realized.
  • The volume of providers and healthcare organizations participating in VBP models vs traditional FFS models is not significant enough to make broad-scale impact across the market.
  • Few VBP models offer significant financial incentives to reduce the total cost of care, further limiting market saturation and participation in these models.
  • Due to provider preference for taking an incremental approach to value-based care, most VBP models do not require the provider organization to bear double-sided financial risk; providers are incentivized to reduce costs but without penalty.

Evaluating VBP models on reducing the total costs of care and improving clinical outcomes will become increasingly important as they proliferate. With the passing of the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA), CMS is offering greater financial incentives to drive participation in double-sided risk-based models, which have the most potential to effect change. VBP models offer a tantalizing opportunity to address the rising costs of healthcare and deliver high-quality care; measuring their effectiveness will help determine if these approaches are transformative or fool’s gold.


Information Buffet (AKA, Other Stuff That Caught Our Attention)


We kept running into stories we wanted to bring to your attention, so here’s a quick hit list of other news we thought you should know:


“[Cancer] treatments are getting so good patients are living too long to measure survival advantages in a reasonably sized trial.

“In these cases, other endpoints like minimal residual disease or complete response, can give us the practical knowledge we need to predict survival.

“[W]e know we owe it to patients and providers to be even more transparent about how we’re making these [drug-approval] decisions, and how the science is changing our regulation.

“And so, in the coming weeks, for the first time, CDER will publish on the web, a list of the surrogate endpoints that were the primary basis of approval or licensure of a drug or biological for both accelerated and traditional approvals.

“We believe this list will help to address some of the questions that’ve been raised about how we apply surrogates to make a given regulatory decision. We’ll also be taking steps to provide more guidance to drug developers on these novel approaches.”

 – Scott Gottlieb, FDA Commissioner, discussing how the agency is rethinking clinical trial design in the midst of a growing market for targeted drug therapies

Source: “Remarks by Dr. Gottlieb to the National Comprehensive Cancer Network Policy Summit,” June 25





Ryan Murphy, an economist at Southern Methodist University, recently published a working paper in which he ranked each of the states by the predominance of psychopaths. Washington, DC scored higher than the next 2 runners-up combined.

Source: “Psychopathy by U.S. State,” May 26


CBI Reimbursement and Access 2018

August 15–16  | Philadelphia, PA
Xcenda’s Corey Ford, MPH, Director of Reimbursement Strategy and Tactics, will team up with Lash Group’s Jim Dickey, Director of Product Experience, to present a session titled, “Emerging Trends in PBM Restrictions on Commercial Copay Assistance.” They will examine and discuss the emerging copay accumulator trends. Learn more


Count on Health Policy Weekly for an at-a-glance view of legislative and regulatory developments and news that impacts the healthcare industry.


Jennifer Snow
Senior Director,
Health Policy

Scott Shields
Associate Director,
Health Policy



Amy Grogg, PharmD
Senior Vice President | Commercialization Solutions | AmerisourceBergen Corporation

Kristine Flemister, PharmD
President | Xcenda

Tommy Bramley, PhD, RPh
President | Lash Group

Stacie Heller
Vice President | Government Policy | AmerisourceBergen Corporation

Rita Norton
Senior Vice President | Government and Public Policy | AmerisourceBergen Corporation

Ana Stojanovska
Vice President | Reimbursement & Policy Insights | Xcenda


Maureen Holmes | Reeya Patel | Scott Shields | Diane Wilson


Laurie Kozbelt | Ellen Olson | Tia O’Brien


June 29, 2018


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