More on Policy and Legislation

CMS finalizes rule to promote value-based drug purchasing agreements

Negotiations of drug prices are to be based on clinical outcomes; if the drug is not effective, the payer is not held accountable for the full price.

Mallory Hackett, Associate Editor

Seema VermaSeema Verma

The Centers for Medicare and Medicaid Services on Monday issued a final rule that supports the creation of value-based purchasing arrangements for innovative and costly drug therapies between states, drug manufacturers and commercial payers.

The final rule also creates new minimum standards in state Medicaid drug utilization review programs that are designed to reduce opioid fraud, misuse and abuse.


Under current regulations, prescription drug manufacturers can face barriers when reporting their Medicaid best prices to CMS and can be discouraged from designing new value-based payment models for their product.

The new rule will incentivize manufacturers to set up value-based purchasing arrangements because drug pricing will be driven by the value of the drug to individual patients, CMS said. It allows for negotiations around drug prices to be based on evidence-based outcomes such as reduced hospitalizations, lab visits or physician office visits to ensure that if the drug is not effective, the payer is not held accountable for the full price.

Under the rule, prescription drug manufacturers will be allowed to report multiple best prices to CMS instead of just one when they offer value-based purchasing arrangements in all states. 

These changes go into effect in January 2022 and will encourage more value-based purchasing arrangements to help make innovative therapies more accessible to patients, CMS said. It estimates that these regulatory changes could save up to $228 million in federal and state dollars through 2025.

Additionally, the final rule implements provisions under the Substance Use-Disorder Prevention that Promotes Opioid Recovery and Treatment (SUPPORT) for Patients and Communities Act that promote safe opioid prescribing through state Medicaid drug utilization review programs. Specifically, the rule finalizes minimum standards to help states identify inappropriate prescribing of opioids if a beneficiary is already receiving treatment for a substance use disorder.


Current regulations under the 30-year-old Medicaid drug rebate program are "outdated" and prevent payers and manufacturers from creating value-based agreements for the new kinds of genetic-based treatments that are becoming popular on the market, CMS Administrator Seema Verma said in the announcement.

When the rule was first proposed, the American Hospital Association expressed support of CMS encouraging value-based purchasing agreements. However, it said that the agency needed to find the balance between risk and responsibility. It feared that the rule could enable drug manufacturers to rush drugs to market and increase patient costs without putting risk on the shoulders of the manufacturers.


"Rules on prescription drug rebates and related reporting requirements have not been updated in thirty years, and are thwarting innovative payment models in the private sector," said CMS Administrator Seema Verma. "Medicaid's outdated rules have consistently stymied the ability of payers and manufacturers to negotiate drug reimbursement methods based on the actual outcome of the treatment. A new generation of approaches to payment methods is needed to allow the market the room to adapt to these types of curative treatments while ensuring that public programs like Medicaid remain sustainable and continue to receive their statutorily required discounts."

Twitter: @HackettMallory
Email the writer: