Clinical laboratories and anatomic pathology groups should consider this another example of how CMS is taking forward steps to encourage value-based payment arrangements throughout the health system

With the sky-high cost of many prescription drugs and gene therapies, it was only a matter of time before the Centers for Medicare and Medicaid Services (CMS) would seek to link reimbursement for them to patient outcomes.

A recent CMS proposed rule (CMS-2842-P) concerning value-based purchasing (VBP) for prescription drugs covered by Medicaid encourages payers to engage in Medicaid state value-based purchasing (aka, pay-for-performance) arrangements for expensive prescription drugs. This rule may have implications for medical laboratories and anatomic pathology groups if it were extended to cover companion diagnostics linked to expensive therapeutic drugs and gene therapies.

CMS also intents the proposed rule to help drug manufacturers ease roadblocks to contracting with payers—including Medicaid—a CMS fact sheet explained.

Federal officials are looking to reimburse healthcare providers for prescribing drugs that are shown to work best on patients that truly need them, while also incentivizing pharmaceutical manufacturers to created drugs “of high patient value,” stated Laffer Healthcare Intelligence, a Nashville, Tenn. healthcare investment firm, in an email to its intelligence service subscribers. 

In a press release announcing the proposed rule, Seema Verma, CMS Administrator, said “We are creating opportunities for drug manufacturers to have skin in the game through payment arrangements that challenge them to put their money where their mouth is.”

Old Regulations Don’t Address Value, Expensive Gene Therapies

According to CMS, for 30 years federal regulations have favored the “volume of drugs” sold over the “quality of drugs.” Simultaneously, during the past three years the US Food and Drug Administration (FDA) has approved four gene therapies with many more “in the development pipeline,” Verma wrote in the journal Health Affairs. “While the lifesaving impact of these often-curative therapies are profound, their costs are unprecedented,” she stated.

CMS’ new rule proposes to define value-based purchasing as “an arrangement or agreement intended to align pricing and/or payments to evidence-based measures and outcomes-based measures,” Verma added.

Companion Diagnostic: Molecular and Genetic Testing

For clinical laboratories, the case CMS makes for therapeutic drugs could be applied to expensive molecular diagnostics and genetic testing. CMS may base reimbursement on how accurately and how fast a lab test can enable a diagnosis. Also, payment could be linked to a lab’s report and guidance to the ordering provider in selecting a therapy that makes a difference in the patient’s outcome.

“This is exactly the concept of the companion diagnostic,” said Robert Michel, editor-in-chief of Dark Daily and its sister publication, The Dark Report. “Take, for example, a $5,000 genetic cancer test that that stages a $500,000 cancer prescription drug. Patients who will not benefit from the drug will not get it. And the $5,000 lab test may keep, say, 10 people from getting a drug that wouldn’t work for them. Thus, the $50,000 in lab tests could save $5 million in prescription drug costs,” he explained.

Deals That Focus on Gene Therapies

One gene therapy recently approved by the FDA is Zolgensma (trade name for Onasemnogene abeparvovec), a treatment for children with spinal muscular atrophy. It costs about $2 million for a one-time use, FDA Review reported.

For its part, Novartis, the Basel, Switzerland-based creator of Zolgensma, said the proposed CMS changes are “an important first step,” and helpful to the company’s “access strategy” in the US, BioPharma Dive reported.

Healthcare experts envision that deals struck under the new proposed CMS rule will focus on gene therapies and expensive drugs, MedPage Today reported.

“Measuring outcomes is costly; it takes time, and everyone has to come up with a way to do it. So, if a drug costs $50, it’s not worth going to every single patient (in research). If the drug costs $500,000, maybe it’s worth it … figuring out if the drug worked. That’s why people talk about it in the context of gene therapies,” Alexander Dworkowitz (above), Partner, Manatt Health, New York, told MedPage Today. (Photo copyright: Manatt, Phelps and Phillips, LLP.)

Advancing Precision Medicine, Improving Patient Access

The CMS news release summarized potential benefits of the proposed rule (comments period ends July 20):

  • Support paying providers on improved patient outcomes instead of fees for services and volume.
  • Insurers could be in a better position to negotiate based on a drug’s effectiveness.
  • More clinical evidence about therapies may become available.
  • Providers and payers may see opportunities to use and offer medications and treatments in a precision medicine manner.
  • Patients may have greater access to new therapies.

Proposed Rule Names Pharmacy Benefit Managers, Opioids

According to the Laffer Healthcare Intelligence analysis email, CMS’ 137-page proposed rule is “very broad,” but focuses on three themes:

  •  “First, CMS wants to establish an official definition for VBP models to accelerate development of drug pay-per-value programs.
  • “Second, CMS want to restrict the amount of opioids doctors can prescribe.
  • “Third, very subtle changes are proposed that negatively affect the PBM (pharmacy benefit management) industry.”

CMS’ proposal also includes standards aimed at fighting opioid prescription fraud and misuse in Medicaid drug programs, noted Fierce Healthcare.

Transparent Drug Prices

Medical laboratory leaders may want to monitor the progress of this proposed rule. In addition to value-based payment, the rule advances price transparency by clearing the way to sharing prices of therapeutic drugs and how they improve patient care, while also lowering costs.

Meanwhile, a refresh of lab information technology to enable authorization of genetic and molecular tests by payer also may prove worthwhile.

—Donna Marie Pocius

Related Information:

Fact Sheet: Establishing Minimum Standards in Medicaid State Drug Utilization and Supporting Value-based Purchasing for Drugs in Medicaid, Revising Medicaid Drug Rebate and Third-Party Liability Requirements (CMS 2482-P)

CMS Issues Proposed Rule Empowering Commercial Plans and States to Negotiate Payment for Innovative New Therapies Based on Patient Outcomes

Federal Registry: Establishing Minimum Standards in Medicaid State Drug Utilization Review and Supporting Value-based Purchasing for Drugs Covered in Medicaid, Revising Medicaid Drug Rebate and Third-Party Liability Requirements (CMS 2482-P)

CMS’ Proposed Rule on Value-based Purchasing for Prescription Drugs: New Tools for Negotiating Prices for the Next Generation of Therapies

FDA Approves $2 Million Drug; Blame the Price on Excessive Regulation

With New Proposal, Trump Administration Tries to Encourage ‘Value-based’ Drug Deals

CMS Proposes Rule to Encourage ‘Value-based’ Drug Payments in Medicaid—Could Ease Access to Expensive Therapies, Experts Say

CMS Proposed Rule Aims to Foster More Medicaid Value-based Drug Agreements