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Medicaid Policies Cited as Hurdle to Results-Based Drug Pricing

By Kerry Young, CQ Roll Call

January 29, 2016 -- Medicaid’s purchasing rules would be an obstacle to future potential bids to tie the costs of medicines to the results they produce for patients, according to a joint publication from Eli Lilly & Co. and Anthem Inc.

Medicaid rebates could complicate efforts to base drug payments on the outcomes for patients, wrote the two Indianapolis-based health care powerhouses in a Health Affairs website blog post Friday as part of their larger collaboration examining the outlook for medicines.

Rising concerns about drug costs in the United States are fostering growing discussion of so-called valued-based pricing for drugs. In such a system, drugmakers would agree on measures for judging how much their medicines helped insurers' customers and allow this to determine how much they ultimately would be paid for their products.

A version of this approach has been used in Europe in connection with costly new cancer medicines that may work for only a small population of patients, such as Johnson & Johnson’s Velcade.

In the blog post and papers linked to it, representatives of drugmaker Lilly and insurer Anthem delved into the details of how such a switch could be made in the United States. The Medicaid program’s "best price" rules stand out as an immediate hitch to value-based payments, argued Samuel R. Nussbaum, Anthem’s former chief medical officer and current adviser on alternate forms of payment, and Dave Ricks, president of Lilly Bio-Medicines business.

Medicaid, the state-federal health program for those living in or near poverty, demands that pharmaceuticals companies in many cases offer officials the lowest prices for which they have offered other purchasers of medicines.

It could prove costly if a drugmaker entered an arrangement, for example, to offer a 40 percent rebate to an insurer for every person who didn’t respond to a specific medicine, while charging full price for those who did.

"That same drug company might then be required to offer certain government programs a 40 percent rebate across the board," Nussbaum and Ricks wrote. "This lack of flexibility makes it very difficult for drug developers to enter into more innovative partnerships focused on creating value."

The federal government likely will need to update laws and regulations to accommodate a future shift to value-based pricing, Lilly and Anthem said in a paper accompanying the Health Affairs post. One needed step may be developing a template memorandum of understanding or sample agreement for insurers and drugmakers to use to appropriately exclude value-based pricing concessions from rebate reporting requirements.

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