HHS to Create New Potential Medicare Pricing Models for Cell and Gene Therapy, Drugs Subject to Accelerated FDA Approval, and “High-Value” Generics

On February 14, 2023, the U.S. Department of Health and Human Services (HHS) published a report^[1] identifying three models that the Center for Medicare & Medicaid Services’ (CMS) Center for Medicare & Medicaid Innovation (CMMI) will test to try to improve the affordability and accessibility of prescription drugs. The report responds to the state of prescription drug costs and access in America, as well as the widespread changes introduced by the Inflation Reduction Act of 2022 and President Biden’s Executive Order 14087 (October 2022),^[2] both intended to help lower prescription drug costs for Americans. The three selected models will test the feasibility of methods to: (i) offer generic prescription drugs at $2 or less for Medicare patients; (ii) reduce Medicaid costs for novel cell and gene therapies through outcomes-based agreements with manufacturers on a multistate level; and (iii) improve the safety and efficacy of drugs approved through the FDA’s Accelerated Approval Program by aligning payment methods with stakeholders’ incentives. More detail on these three models is expected, and Goodwin attorneys will continue to monitor for additional guidance and any opportunities for public comment.

Three Models Selected for Testing

1. The Medicare High-Value Generic Drug List Model
Uncertainty and lack of transparency with respect to prices of prescription drugs are cited as concerns for both patients and providers in setting and maintaining plans for care. In its Medicare High-Value Drug List Model, CMMI seeks to understand whether providing approximately 150 high-value generic medications at affordable prices and with consistent cost sharing will increase adherence to care regimens, improve health and equity outcomes, and reduce costs. To test this theory, Medicare Part D plans will be encouraged to provide certain prescription drugs on a “standardized drug list” for a maximum co-pay of $2 per monthly supply, across all cost-sharing phases of the Part D drug benefit, and not subject the drugs to step therapy, prior authorization, quantity limits, or pharmacy network restrictions.

HHS explains the rationale behind this model by highlighting the benefits of a clear standardized drug list for both prescribers and patients. With an established list of drugs, providers will be able to identify appropriate and cost-effective medications that will offer affordable and predictable care for patients. The model is also consistent with and builds upon existing IRA affordability provisions limiting annual or monthly out-of-pocket costs as well as CMS’s Part D Senior Savings Model, which allows Medicare to limit co-payments for certain insulin products at $35. The initial data from the Part D Senior Savings Model suggests that simple, consistent, and transparent pricing methods may lead to increased adherence to care regimens, which the Medicare High-Value Drug List Model intends to further. CMS expects to announce model specifications as soon as possible, with the “standardized drug list” likely including drugs indicated for chronic conditions such as hyperlipidemia and hypertension.

2. The Cell & Gene Therapy Access Model
In the Cell & Gene Therapy Access Model, CMS will coordinate and administer outcomes-based agreements with manufacturers across multiple state Medicaid agencies, allowing the state Medicaid agencies to pay for cell and gene therapies, which are typically more expensive, through this partnership. Placing CMS at the center of these negotiations will reduce the burden placed on state Medicaid agencies and allow for greater collective bargaining power for affordable prices. Testing a multistate approach may also provide a valuable federal framework for providing access to cell and gene therapy more broadly. Development for this model will begin in 2023, with a model test launching as early as 2026, and will target cell and gene therapies indicated to treat illnesses like sickle cell disease and cancer.

Notably, the HHS report highlighted that manufacturers have recently been permitted, subject to limitations, to report multiple best prices for value-based arrangements in certain situations under the Medicaid Drug Rebate Program. However, according to the report, no manufacturers have used the option of reporting multiple best prices.

3. The Accelerating Clinical Evidence Model
The FDA established its Accelerated Approval Pathway (AAP) in 1992 to “allow for earlier approval of drugs that treat serious conditions, and fill an unmet medical need based on a surrogate endpoint.”^[3]As a condition of accelerated approval, the FDA generally requires a manufacturer to perform adequate and well-controlled postmarketing confirmatory clinical trials with due diligence to confirm the drug’s anticipated clinical benefit. Completing confirmatory trials is important because “instances of delayed confirmatory trials and incomplete clinical data may result in beneficiaries taking ineffective drugs, resulting in excess cost and delaying a patient’s progress towards alternative therapies or treatments, if available.”^[4]

The Accelerating Clinical Evidence Model intends to address this issue by incentivizing manufacturers to continue developing novel treatments and seeking accelerated approval, and also to complete timely confirmatory trials to prove these treatments’ clinical benefit. CMS will do so by taking a variety of approaches to adjusting Medicare Part B payment methods, informed by the Medicare Payment and Advisory Commission (MedPAC), the Medicaid and CHIP Payment and Access Commission (MACPAC), others who study the AAP, and the FDA. The model intends to find a suitable balance of incentives and alignment between manufacturers, payors, and beneficiaries. Further, the report states that the model will seek to incentivize manufacturers to expedite and complete confirmatory studies and improve access to postmarket safety and efficacy data.

CMS states that this model would initially address Medicare Part B fee-for-service providers but notes that it could ultimately expand to other programs as well. The report, however, provides little detail on what changes CMS would make to the Part B payment amounts for these AAP drugs. CMS intends to consult with the FDA to explore the model in 2023 and, if determined appropriate, target the model’s launch as soon as feasible thereafter. The report states that CMS may publish an Advance Notice of Proposed Rulemaking after model development and before engaging in rulemaking.

Further Research Initiatives

In addition to selecting these three models, HHS also directed CMMI to continue to evaluate potential models focused on: (i) accelerating biosimilar adoption and launch; (ii) testing alternative payment approaches to increase access and affordability with respect to cell and gene therapy; and (iii) supporting price transparency through increased access to prescription drug data (e.g., allowing Medicare beneficiaries and providers to use prescription drug data to evaluate drug alternatives, assess utilization management review requirements, compare price by fulfillment locations, and shop plan options).

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While the specific methodology CMS intends to use for these programs has not yet been defined or initiated, and while we do not have a clear sense of the scope of their implementation, let alone results, we do highlight these proposed payment models as another example of additional potential pricing pressures applied to pharmaceuticals and biologics by the Medicare and Medicaid programs. We will continue to monitor and report on these updates as they arise.

Please contact Matt Wetzel (mwetzel@goodwinlaw.com) or Heath Ingram (hingram@goodwinlaw.com) if you would like further information.

^[1] U.S. Dept. Health & Human Serv., A Report in Response to the Executive Order on Lowering Prescription Drug Costs for Americans (2023).
^[2] Exec. Order No. 14,087, 87 Fed. Reg. 201, 63,3399 (Oct. 19, 2022).
^[3] U.S. Food & Drug Admin., Accelerated Approval Program (1992).
^[4] U.S. Dept. Health and Human Serv., supra note 1, at 16.