“To put these Medicaid findings in context, in North Carolina, about half of people coming to the emergency department for opioid-related overdoses are uninsured.”

— Aaron McKethan, PhD

The Medicaid Best Price (MBP) policy requiring drug manufacturers to give Medicaid programs the lowest price among purchasers (with a few exceptions) plays a critical role in achieving relatively low fee-for-service (FFS) drug prices in Medicaid. However, its current interpretation has been widely cited as a substantial barrier to the adoption of alternative payment models for drugs that shift away from FFS reimbursement. For example, if a Value-Based Payment (VBP) arrangement ties payments to outcomes,1 a very low payment for a particular patient in which a treatment does not work could become a new MBP for all patients – even if it only applies to a non-representative subset of patients in the drug payment contract.
In this paper, developed by the Duke-Margolis Center for Health Policy, with guidance from its Valuebased Payment for Medical Products Consortium, we describe how the Centers for Medicare and Medicaid Services (CMS) could use its existing statutory authority to provide clarifications for applying MBP to VBP models, without compromising the key goal of MBP. Specifically, we focus on CMS’ interpretation of the bundled sales provision, which requires that discounts on all drugs in the bundle are allocated proportionately across the undiscounted value of the products for MBP reporting, in the context of VBP arrangements. We argue that a low price paid for a patient with a poor outcome as an element of an outcome-based contract for a covered population does not accurately reflect the “unit price” for the drug in that population. Rather, that particular drug price should be “bundled” with other prices for the population – including the mix of higher payments when the drug achieves its performance goal. This approach is consistent with past examples of how MBP should be calculated in the context of bundled drug pricing contracts and, importantly, does not create an exemption of VBP arrangements from MBP reporting; indeed, if the resulting average price of the drug for patients in the VBP arrangement is lower than in other contracts, then that lower price will be the MBP. Rather, this clarification of existing regulations is intended to update the concept of bundled sales to accommodate VBP arrangements, and to increase legal certainty for payers and manufacturers who seek to enter VBP arrangements, without restricting the statutory intent of MBP to enable a population of Medicaid recipients to get the best price that is offered in the marketplace. Additionally, we consider the role of the limited free goods exception in interpreting the MBP requirements.
Below, we outline the basis for CMS’ statutory authority to revise its interpretations regarding the bundled sales provision and free goods flexibilities to MBP. These potential revisions would reduce uncertainty about the implications of VBP arrangements for manufacturers and payers, while still preserving the role of MBP to achieve the lowest net drug prices for Medicaid populations.