CMS proposes to hold drugmakers and PBMs accountable for cost of drugs covered by Medicaid

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The Centers for Medicare and Medicaid Services has issued a proposed rule to drive down prescription drug costs in Medicaid by increasing price transparency. 

The rule would allow CMS to have more insight into what the most expensive drugs on the market actually cost to manufacture and distribute.  

CMS is not able to mandate that drug manufacturers lower the price of their drugs, but Medicaid, under the new proposal, would have the increased ability to hold drug manufacturers accountable for what Medicaid programs pay for drugs, CMS said.

CMS and the federal government have the authority to increase public transparency of high-cost drugs, said Dan Tsai, CMS deputy administrator and director of Center for Medicaid and CHIP Services.

"It provides a backstop to bring into the national spotlight, how do we justify the level of pricing and make sure there's transparency?" Tsai said during a briefing on Tuesday.

But there is no choice between coverage and affordability, Tsai said. "This is not a tradeoff of price versus access," Tsai said. "With this rule we are affirming … coverage of drugs is medically necessary and is nonnegotiable. We think it's a statutory requirement."

States that cover prescription drugs must cover all FDA-approved outpatient prescription drugs produced by manufacturers that participate in the Medicaid Drug Rebate Program, which includes most major drug manufacturers. 

CMS is accepting public comment through July 25. 

WHY THIS MATTERS: WHAT THE PROPOSED RULE DOES

As part of the Drug Misclassification Proposed Rule, CMS is proposing to implement a "Medicaid Drug Price Verification Survey" through which certain manufacturers of high-cost drugs would be required to submit detailed pricing and other data to CMS. 

The drug price verification survey would help states better negotiate what the Medicaid program pays for high-cost drugs, CMS said. After receiving and reviewing survey responses, CMS would publish the nonproprietary elements of the survey publicly on Medicaid.gov. 

Managed care plans cover more than 75% of Medicaid beneficiaries. Managed care plan pharmacy benefit managers often negotiate and administer the pharmacy benefit, though there has been a lack of transparency into the amount plans have paid to PBMs for administering the drug benefit and the amount pharmacies have been paid for the drugs. 

This lack of transparency has raised concerns about PBMs using spread pricing arrangements. Spread pricing is when PBMs increase their profit margins by charging an MCO more for a drug than the amount a PBM pays a pharmacy.

Contracts with managed care plans would include a report on spread pricing, CMS said. CMS is proposing that contracts between states, Medicaid-managed care plans, and third-party contractors, such as PBMs, reflect transparent reporting of drug payment information among third-party contractors. 

Each year, CMS would identify the drugs that have the highest cost. This is expected to be a price of a million dollars per individual or the highest launch price, which can be over $2 million. This narrows the highest priced drugs to a number of about 150.

CMS will identify three to 10 drugs per year to validate pricing and will request proprietary and nonproprietary pricing.

The proposed rule also focuses on the potential misclassification of drugs as brand name or generic. It includes provisions to ensure states would receive the appropriate rebates to which they are entitled, since states receive a higher percentage of rebate dollars for brand-name drugs compared to generics. 

With increased transparency, states would be able to determine if manufacturers appropriately classified their covered outpatient drugs, and if they did not, give CMS the ability to take action to correct the misclassification.

CMS is also proposing that Medicaid-managed care plans structure contracts with PBMs to require that PBMs report the cost of the covered outpatient drug and dispensing or administration fees separately from any administrative costs, fees and expenses of the PBM to enhance transparency into the actual drug price paid and ensure accurate calculation of the managed care plan's medical loss ratio.

THE LARGER TREND

CMS said it is committed to ensuring robust coverage and access to prescription drugs for Medicaid and Children's Health Insurance Program (CHIP) beneficiaries, but rapid increases in drug costs are putting the Medicaid program's financial sustainability at significant risk. 

Many of these increased costs are driven by new, high-cost drugs with no competition in the market, CMS said. These drugs can cost more than $1 million per patient per course of treatment. 

Because state Medicaid agencies are required by federal statute to cover all U.S. Food and Drug Administration (FDA)-approved covered outpatient drugs in most circumstances, they have very limited leverage to negotiate lower prices with the manufacturers of these high-cost drugs.

The proposed rule follows the Biden Administration's creation of the Medicare Prescription Drug Inflation Rebate Program, which for the first time mandated drug companies to pay rebates to Medicare when their prescription drug prices increase faster than the rate of inflation.

ON THE RECORD

"President Biden is not only committed to protecting Medicaid, but continues to take bold actions to strengthen the program," said HHS Secretary Xavier Becerra. "With today's proposed rule, we are advancing unprecedented efforts to increase transparency in prescription drug costs, being good stewards of the Medicaid program, and protecting its financial integrity. This proposed rule will save both states and the federal government money."

"This proposed rule prioritizes CMS' role as a good steward of Medicaid dollars while also strengthening program integrity and the management of pharmacy benefits for people with Medicaid coverage," said CMS Administrator Chiquita Brooks-LaSure. "We're committed to preserving access to life-saving treatments and securing fiscal sustainability for the Medicaid program, which remains a lifeline for millions of people."

Twitter: @SusanJMorse
Email the writer: SMorse@himss.org