Overcoming Legal and Regulatory Hurdles to Value-Based Payment for Medical Products

December 15, 2017


    Growing concerns over the high cost of new and innovative drugs and devices have led to increased interest in developing value-based payment (VBP) arrangements for these medical products, with the goal of achieving better outcomes at a lower overall cost than the current fee-for-service (FFS) system. These payment reforms aim to align pricing and/or payments more directly to evidence on outcomes and costs. As with VBP reforms for healthcare providers, implementation of VBP arrangements for medical products might be meaningfully viewed on a spectrum ranging from modest incremental FFS payment adjustments based on expected value, to contracts that involve substantial accountability and risk sharing for health outcomes and total costs for a population of patients. More advanced models rely on a combination of quality of care measures, clinical or patient-reported outcomes, utilization outcomes, and measures of spending intended to reflect value. Yet, while a growing share of health care payments are shifting to value-based approaches in other parts of health care, most VBP arrangements for drugs, devices, and other medical products are modest, involving limited performance-based adjustments in conjunction with predominantly FFS payments.

    Some of the most notable hurdles to more advanced VBP arrangements for medical products involve current U.S. laws and regulations designed to address appropriate concerns about overuse, misuse, and excess spending associated with medical products in FFS payment systems. As we move away from FFS, these aspects of the current U.S. statutory and regulatory landscape not only complicate VBP implementation, but in some cases prevent their adoption.

    Major concerns include:

    • Off-label communication restrictions: VBP contracts require the bilateral exchange of a wide range of performance data among the manufacturers, payers, and providers involved in the contracts, often involving performance results and uses not yet on the product label, or products that are approaching the market but not yet with an approved label. Recent legislation and FDA regulatory action has addressed some of these issues, particularly involving economic outcomes. Yet, stakeholders have expressed concern about sharing such information for VBP contracts due to regulatory uncertainty about manufacturer communications and activities related to unapproved uses of approved or cleared medical products, impeding the widespread adoption of more sophisticated VBP arrangements.
    • Anti-kickback rules: The Anti-Kickback Statute (AKS) is intended to prevent exchanges of value between manufacturers and other parties, which especially in FFS arrangements create risks of inappropriate care. While “safe harbors” have been developed for some activities, current rules do not consider payment models for medical products in which reimbursement depends mainly on measures of value and not on volume of sales. This environment is challenging for the implementation of VBP arrangements since the potential for increased value often depends on some degree of coordination and sharing of data, analytics, and other care improvement resources between the contracting parties.
    • “Best Price” and related pricing regulations:  A number of pricing rules for drugs, particularly the Medicaid Drug Rebate Program’s Best Price calculation (MBP) requirement, serve an important purpose in achieving low volume-based payments for drugs in Medicaid. However, as currently formulated, failure to achieve desired outcomes in an advanced outcomes-based contract could trigger a higher rebate for all Medicaid utilization of the drug.

    All of these barriers could benefit from clarification of current guidance, as well as from regulatory and legislative reforms to foster a more certain environment for the adoption of payments for medical products that shift substantially away from FFS. These shifts would align with major health care payment reform initiatives for providers, and could create more assurance and support for innovative products to deliver higher value to patients.    

    The Duke-Margolis Center for Health Policy, working with a broad-based Consortium—composed of patient advocates, payers, manufacturers, and providers, as well as experts on regulatory affairs, law, and policy — analyzed the legal barriers to meaningful VBP arrangements involving medical products, noting situations where stakeholders may be able to utilize the existing and emerging regulatory environment to develop and implement VBP arrangements.

    Based on our analysis, we recommend that the Food and Drug Administration, Office of Inspector General, Centers for Medicare & Medicaid Services, and Congress take certain steps to advance legal certainty and incentivize the further development and adoption of meaningful VBP arrangements for medical products. Regulatory innovation to address these obstacles should match and support the innovations in 21st century technologies and healthcare organizations, by providing a clear pathway for aligning manufacturers and healthcare providers behind payment approaches that deliver better outcomes and avoid unnecessary healthcare costs.

    Below is a summary of regulatory and legislative recommendations:

    FDA Regulation of Manufacturer Communications

    • Expand the scope and finalize the healthcare economic information (“HCEI”) draft guidance
    • Implement a safe harbor for VBP arrangements
    • Permit dissemination of HCEI related to investigational intended use
    • Leverage 21st Century Cures authorities to facilitate development of VBP arrangements with RWE
    • Promulgate regulations on off-label promotion
    • Establish a safe harbor for pre-approval communication of HCEI
    • Create regulatory certainty for off-label information to support value-based care models

    Anti-Kickback Statute

    • Reinterpret “volume or value of any referrals” in the context of VBP arrangements
    • Reinterpret “Fair Market Value” in the context of VBP arrangements
    • Revise existing safe harbors to facilitate VBP arrangements
    • Establish a VBP arrangement safe harbor
    • Establish clear policy direction with respect to VBP arrangements

    Medicaid Best Price

    • Reinterpret the bundled sales provision
    • Clarify that rebates based on value negotiated by Medicaid managed care organizations do not trigger MBP
    • Modify basis of measurement for MBP in the context of VBP arrangements through regulatory and/or legislative actions
    • Establish Section 402 demonstrations for VBP arrangements
    • Establish safe harbors for MBP
    • Modify Center for Medicare and Medicaid Innovation (CMMI) statutory authority