CMS Releases Proposed Rule to Encourage Value-Based Arrangements

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In mid-June 2020, the United States Centers for Medicare and Medicaid Services (CMS) released a proposed rule (NPRM), “Establishing Minimum Standards in Medicaid State Drug Utilization Review (DUR) and Supporting Value-Based Purchasing (VBP) for Drugs Covered in Medicaid, Revising Medicaid Drug Rebate and Third Party Liability (TPL) Requirements.” The NPRM would clarify how VBP arrangements interact with average manufacturer price (AMP) and best price in the Medicaid Drug Rebate Program (MDRP). It also includes myriad other Medicaid-related regulatory changes.

The MDRP requires drug manufacturers to offer rebates to state Medicaid programs, which are required to be the greater of a percentage of a drug’s AMP or the difference between an AMP and best price. States have generally had to be creative when developing VBPs due to industry concerns that MDRP rules could require unreasonable rates or prices depending on the VBPs structure. The rule attempts to assuage those concerns.

CMS looks at VBPs as a tool that state Medicaid programs may use to address the high costs of certain treatments. “CMS’ rules for ensuring that Medicaid receives the lowest price available for prescription drugs have not been updated in thirty years and are blocking the opportunity for markets to create innovative payment models,” said CMS Administrator Seema Verma. “By modernizing our rules, we are creating opportunities for drug manufacturers to have skin in the game through payment arrangements that challenge them to put their money where their mouth is.”


The NPRM modifies the definitions of best price and VBP to make it clear that a drug can have multiple “best prices” that are tied to VBP arrangements. These modifications make clear that a “best price” based on performance in a VBP arrangement would not reset best price for the drug in a calendar quarter. This means that drugs could have multiple rebates based on patient response to the drug.

Additionally, if there is a performance component to the arrangement, VBP arrangements may qualify as a “bundled sale,” which are sales conditioned on the purchase of another product and allow discounts to be smoothed across all products in the arrangement.


The rule would implement new safety edits in state DUR, including those that identify and mitigate potential misuse, abuse, and overdose risk related to opioids. The NPRM also implements Section 5042 of the SUPPORT Act, requiring Medicaid providers to review Prescription Drug Monitoring Programs (PDMP) prior to prescribing beginning October 1, 2021. The rule also requires DUR to identify cases in which a patient is prescribed an opioid after being prescribed medication-assisted therapy (MAT) or been diagnosed with an opioid use disorder.


Best price does include exclusions for PAPs, but only as much as the PAPs’ benefits result to consumers. In the NPRM, CMS notes that accumulator programs can require that manufacturer sponsored PAPs be applied to the benefit of the plan, restricting PAP funds from reducing consumers’ payments for the drug the PAP covers. CMS says that some manufacturers do not monitor PAPs and proposes that the best price exclusions for PAPs only apply if the manufacturer can ensure that the full value of the PAP will benefit the consumer. Manufacturers can establish coverage criteria to ensure that benefits go exclusively to consumers.

Managed Care Supplemental Rebates

CMS also attempts to clarify that supplemental rebates negotiated by managed care organizations for prescription drugs that are not part of a CMS-authorized supplemental rebate agreement are not excluded from the manufacturer’s determination of AMP and best price.

Other Provisions

Labor and Delivery

The proposal would also remove a provision in the Code of Federal Regulations that allows a state Medicaid agency to pay the full amount allowed under its fee schedule for labor, delivery, and post-partum care services and later seek reimbursement from a liable third party (“pay and chase”). It would also remove prenatal care for pregnant women from the list of services for which state Medicaid agencies must pay and chase. Pay and chase is used when engaging in outright cost avoidance in cases of TPL would result in a detriment to access to care.

Comment Period

The comment period is open for thirty days and will close on July 19, 2020, at 5:00 PM. Once the comment period closes, CMS will review all comments and may make changes to the rule prior to finalization.

A fact sheet about the proposed rule can be found here. A press release about the proposed rule can be found here.

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