The rising costs of prescription drugs, especially novel and expensive cell and gene therapies, are straining state Medicaid budgets. There are currently 39 Food and Drug Administration (FDA)–approved cell and gene therapies, with prices ranging from $65,000 per course of treatment to $4.25 million (for Lenmeldy, a new treatment for a rare genetic disease in children). The dueling requirements to cover most FDA-approved drugs, per the Medicaid Drug Rebate Program (MDRP), and to balance their budgets, create a daunting fiscal challenge for states. However, Medicaid can use state plan amendment (SPA) authority, which allows states to make changes to their Medicaid programs, to pursue innovative payment approaches for high-cost products.
Innovative Payment Approaches
Only nine of 25 states with an approved Medicaid SPA for an innovative payment arrangement addressing novel and expensive therapies coming to market have operational programs. These SPAs have been used to pursue the following:
- Outcomes-Based Arrangements (OBAs). States negotiate additional supplemental rebates, on top of those provided through the MDRP, which are tied to the effectiveness of the drug based on agreed-upon outcomes, for example, medication adherence or avoided hospitalizations. Manufacturers are required to provide supplemental rebates if the outcomes are not achieved within specified time frames. Arizona participates in an OBA for spinal muscular atrophy treatments, and Oklahoma has an OBA for a schizophrenia treatment. Colorado has entered into five OBAs, with the latest focused on inflammation treatment. Rebates under these arrangements have been tied to outcomes related to hospitalization rates and clinical benefit.
- Subscription-Based Payment Model. Under this approach, also known as the “Netflix model,” states pay a flat fee to manufacturers for unlimited doses of the manufacturer’s product. The goal is to ensure patient access while providing predictable budgetary impact; the manufacturer benefits from being the sole provider for the state. Louisiana and Washington leveraged this approach for hepatitis C treatments.
Implementation Barriers
Until 2020, MDRP’s best-price provision, which requires Medicaid to pay no more than the lowest price a manufacturer makes available, had been a major barrier to manufacturer participation. Manufacturers were less willing to participate in such arrangements because they would then be required to make the lower arrangement price available to all Medicaid programs, not just the state in which the arrangement was made. In 2020, the Trump administration issued a final rule allowing manufacturers to report multiple best prices for a drug as long as each best price is tied to a different outcome under an innovative purchasing arrangement.
Despite the availability of this best-price flexibility for three years, there has been limited uptake of innovative payment approaches. This may be the result of other implementation barriers, as identified by states, including: challenges related to data collection and reporting of outcomes; lack of state resources for negotiating with manufacturers or manufacturers’ willingness to negotiate; and lack of clinical and technical expertise within state Medicaid agencies.
Available Federal Supports
To address these barriers, the Center for Medicare and Medicaid Innovation (CMMI) launched the Cell and Gene Therapy (CGT) Access Model in 2024 to test whether a Centers for Medicare and Medicaid Services (CMS)–led approach to developing and administering OBAs for cell and gene therapies, starting with sickle cell disease treatments, improves access to innovative treatments and health outcomes for Medicaid beneficiaries while reducing health care spending.
Thus far, CMS has negotiated pricing and other key terms of the arrangement with two participating manufacturers; the manufacturers will make the arrangement, including supplemental rebates, available to all participating states. States are responsible for the cost of the cell and gene therapy, at a discounted price as defined by the OBA, as well as implementing a standard access policy, which would address any utilization management, provider qualifications, and eligibility for treatment. CMS also will compile, monitor, and analyze state-submitted data to support outcome tracking.
OBAs for sickle cell treatments are set to begin in early 2025 on a rolling basis, but participating states have not yet been announced. The model is currently limited to one disease type but may expand to additional therapeutic areas in later years.
Enhanced Federal Assistance for Broader Adoption
The future of the CGT Access Model is uncertain, as it was developed in response to a Biden-era executive order that was rescinded by President Trump. Furthermore, mass firings across the U.S. Department of Health and Human Services, including at CMS and CMMI, raise concerns about whether there is sufficient staff to effectively administer the model. However, the first Trump administration sought to support innovative payment arrangements to lower drug prices through the 2020 best-price rule. This administration may maintain the model with certain adjustments to reflect new priorities.
The administration also has an opportunity to further bolster the implementation of additional innovative payment arrangements. Like the technical assistance provided by CMS to assist state Medicaid agencies in developing managed care programs, a technical assistance program could be established to support the implementation of arrangements to increase access to novel therapies.
In developing this technical assistance, CMS could leverage the expertise developed in the CGT Access Model and transfer it to other treatments, allowing states to design arrangements best suited to their Medicaid populations. It also would help demonstrate the effectiveness of differing value-based approaches, possibly at a faster rate than CMMI could achieve. If the CGT Access Model is proven effective, CMS could also issue guidance or additional rulemaking to support the implementation of innovative payment models in additional markets, including employer-sponsored insurance, Medicare, or Medicare Advantage.
