Advancing Value-Based Contracting for Drugs
The National Law Journal
How best price and anti-kickback laws create unnecessary uncertainty in the aim to pay for what works.
Reprinted with permission from the March 27, 2017 edition of the National Law Journal © 2017 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. ALMReprints.com, 877.257.3382, reprints@alm.com.
The rising cost of health care captures the daily headlines. In recent years, value-based payment methodologies have offered a possible solution.
Value-based contracting ties the price for medical goods and services to demonstration of a pre-defined benefit to patients.
While most common in the hospital and physician setting, more can be done in the drug and device space. Application of pharmacogenomics allows for more precise predictive information as to who may respond to a medication or suffer a side effect.
Wearables and other digital health apps allow for increased collection of data on topics of adherence, efficacy and safety. Advancements in the science of health outcomes and collection of real-world evidence allow utilization of big data to assess how drugs and devices provide value on an individual and or population level.
However, significant contractual and regulatory obstacles, including best price laws and the anti-kickback statute, impede application of this innovation to value-based contracting for drugs and devices.
How Value-Based Contracting Works
The first step is to define the health outcome upon which price will be contingent, and how it will be assessed, whether through lab values, hospitalizations or other criteria. In 2016, for example, Novartis entered into value-based contracts for its heart medication Entresto, tying price to reduced heart failure hospitalizations. Others have utilized this model but challenges remain to widespread adoption.
The contracting parties will also need to overcome data collection challenges. This collection could depend on patients utilizing wearable devices or software applications.
Payor databases are useful but limited, because patients change insurers or drop insurance altogether. Even when patient experiences are captured, providers vary in the intensity and accuracy of their coding for patients' medical conditions, which can lead to inconsistent reporting of outcomes.
Patient noncompliance with medication confounds efforts to assess the value of the medication, particularly in low-income risk pools like Medicaid, where finances, transportation and other barriers affect adherence to prescribed care.
Regulatory Obstacles
The Medicaid "Best Price" Rule
The "best price" rule requires that Medicaid receive the lowest price for a medication that the manufacturer offers to any other payor in a set time period, inclusive of applicable discounts and rebates.
For a manufacturer who engages in value-based contracting with other payors, a number of questions arise, including whether the Centers for Medicare & Medicaid Services would be entitled to any value-based rebate that a private payor receives, and how to calculate the best price in the statutory time period, given that the ultimate price that a private payor pays under a value-based contract will not be known until data is collected. Existing regulations do not provide answers.
When CMS revised the best price rule in April 2016, it recognized that value-based contracting for pharmaceutical products could benefit patients, and that further guidance on how to treat these arrangements for purposes of the best price rule was needed.
But so far, CMS has advised, for instance, in its July 2016 "Medicaid Drug Rebate Program Notice, Release No. 99" only that manufacturers who negotiate such arrangements "consult both the statute and implementing regulations regarding the determination of best price." CMS has promised to give more specific guidance in the future, but until it does so, existing regulations will deter value-based contracting.
A Jan. 29 white-paper by Eli Lilly and Co. and Anthem, "Promoting Value-Based Contracting Arrangements," proposes possible regulatory solutions, including updating the best price statute and regulations "to exclude from best price certain rebates and other price concessions paid from manufacturers to health plans that are the result of value-based contracting ... CMS could also be authorized to create pilot programs to test how value-based contracts and alternative approaches to Best Price impact reported government price figures, and in turn, Medicaid rebate amounts ..."
The Anti-Kickback Statute
The anti-kickback statute broadly prohibits the exchange of anything of value to induce or reward the referral of federal health care program business.
Services offered by a manufacturer to a payor would not neatly fit within any current regulatory safe harbor. Recently, multiple pharmaceutical and device companies have requested that the Office of the Inspector General revisit the anti-kickback statute safe harbors with value-based contracting in mind.
For example, the Advanced Medical Technology Association, a trade association representing manufacturers of medical devices, diagnostic products and health information systems raised the concern that a device company could violate the anti-kickback statute if it offers such free ancillary services as data-analytics, or follow-up testing. This extra service could be viewed as a kickback not protected by any safe harbor.
AdvaMed is also worried that the anti-kickback statute would prevent a medical technology company from providing a hospital a bundle of services (such as technology, consulting, training and patient monitoring) to achieve a specific outcome, and paying a rebate if the outcome was not achieved.
Under existing safe harbors, discounts in connection with a bundled sale do not qualify for protection unless they are "reimbursed by the same federal health care program using the same methodology." 42 C.F.R. § 1001.952(h)(5)(ii), which could limit the types of value-based service bundles that a manufacturer can offer.
PhRMA, which represents pharmaceutical manufacturers, also identified several limitations of existing rules, including inadequate protections for providing personal services to buyers in addition to medications.
Under current regulations, an agency agreement that provides services on a periodic or part-time basis, must specify "exactly the schedule of such intervals, their precise length, and the exact charge for such intervals." 42 C.F.R. § 1001.952(d)(3). But the personal services provided in connection with a value-based contract are subject to variability and may evolve over the course of a contract.
The Office of the Inspector General now has before it concrete proposals for new safe harbors, and CMS has recognized that adjustments in the best price regulations may be necessary to account for value-based contracting.
These agencies should evaluate the merits of proposed reforms, and implement regulations and policies that allow patients and payors to pay for value, but still protect against abuse.
Barry Boise and Barak Bassman are partners in Pepper Hamilton’s health sciences department, a team of more than 110 attorneys who collaborate across disciplines to solve complex legal challenges confronting clients across the health sciences spectrum. Mary Margaret Spence is a senior attorney in the health sciences department.
The material in this publication was created as of the date set forth above and is based on laws, court decisions, administrative rulings and congressional materials that existed at that time, and should not be construed as legal advice or legal opinions on specific facts. The information in this publication is not intended to create, and the transmission and receipt of it does not constitute, a lawyer-client relationship.