This week, Michigan submitted a supplement state plan amendment to CMS seeking permission to enter outcome-based contracts with drug manufacturers under its Medicaid program. If approved, Michigan would be the second state with outcome-based contracts behind Oklahoma, who had a similar proposal approved this past June. The Michigan Department of Health and Human Services did not outline any specific drugs or conditions, as they are waiting to hear back from CMS.|
Under outcomes-based contracts, drug manufacturers could be on the hook for paying additional rebates depending on how well a drug works for a patient. More specifically, reimbursement for a drug is based in part on the observed outcomes of the drug’s use on a population thus creating a tiered rebate structure. The initial price for a payer only remains in place if a specified amount of patients achieves the agreed-upon outcome. However, if this threshold is not met, the drug manufacturer would need to refund some of the original price.
CMS allows states to negotiate supplemental drug rebates in their Medicaid programs based on the National Drug Rebate Agreement guidelines, but Oklahoma became the first state to calculate these rebates using outcomes-based benchmarks. Once approved, CMS officials lauded Oklahoma’s efforts stating that their entry into value-based drug purchasing falls in line with the Administration’s blueprint to lower prescription drug pricing, American Patients First. The Administration’s initiative supports competitive drug rebates and pricing transparency to make prescription drugs more affordable.
Outcomes-based contracts have the potential to curtail spending while promoting effective treatments. These contracts could also benefit both payers and drug manufacturers. Payers could avoid wasting resources on drugs that are not as effective outside of their clinical trials while outcomes-based contracts could provide an alternative option to closed formularies for drug companies. Nonetheless, since this is a relatively new development, questions still remain regarding their influence in improving quality or producing real savings. Ultimately, Michigan and Oklahoma’s efforts will serve as an important first step in determining whether outcomes-based contracts result in true improvements in the value of prescription drug pricing.