CMS Issues Release to Manufacturers Regarding Value-Based Purchasing Arrangements

July 18, 2016

by Alan Kirschenbaum and Michelle Butler

On July 14, 2016, CMS issued a release to manufacturers regarding value-based purchasing (VBP) arrangements.  The purpose of the release is to (1) inform manufacturers how to seek guidance from CMS regarding the impact such arrangements might have on the determination of best price and (2) encourage states to consider entering into VBP arrangements.

Regarding the effect on best price, CMS states that it has received a number of specific requests from manufacturers regarding the effect VBP arrangements might have on the determination of best price.  CMS has concluded that the impact on best price “will differ depending on the structure of the VBP arrangement.”  If manufacturers have questions about specific VBP arrangements, CMS encourages manufacturers to submit questions to CMCS Division of Pharmacy at  CMS also states that it “will seek to generalize lessons learned regarding common questions and arrangements in subsequent guidance.”  As always, manufacturers should continue to consult the statute and regulations and document any reasonable assumptions for the determination of best price.

CMS also uses this release to encourage states to consider entering into VBP arrangements, including through the collection of supplemental rebates.  CMS notes that, to the extent a VBP arrangement provides supplemental rebates pursuant to a CMS-approved supplemental rebate agreement with a state Medicaid agency, such rebates would be excluded from best price.  While that does not solve the problem of the impact of a commercial VBP arrangement on best price, it does show that CMS is continuing to think about ways to implement VBP arrangements for government payors.  Earlier this year, we posted on a CMS proposed rule to test new models for payment of drugs and biologicals under Medicare Part B, which included in Phase II testing of the effect of four VBP arrangements.

These initiatives by CMS are occurring as commercial payors such as Cigna Corp., Harvard Pilgrim Health Care, and others are announcing VBP arrangements that they are entering into with manufacturers.  For example, Cigna recently announced that it has entered into VBP arrangements for both of the PCSK9 inhibitors (a new class of cholesterol-lowering drugs) currently on the market.  Similarly, Harvard Pilgrim recently announced VBP arrangements with Novartis for its new heart failure drug, Entresto, and Eli Lilly for its type 2 diabetes drug, Trulicity.

As both commercial and government payors continue to look for ways to bring down the cost of drugs, we can expect to see more innovative contracting mechanisms, such as VBP arrangements.