Medicaid programs across the country have begun testing alternative purchasing models to combat high-cost drugs. These contracting systems trace their roots to a decades-old push for value-based care yet have only risen in popularity over the past few years. This brief details the ubiquity of subscription- and outcomes-based arrangements among Medicaid plans, as well as emerging insights surrounding curative gene and cell therapies, which cost far more than typical specialty drugs. These emerging contract models represent Medicaid programs’ best chance to provide ultra-high-cost drug coverage to their beneficiaries under a financially sustainable model.

State Medicaid programs typically limit their non-traditional drug purchasing to single- or multi-state-pooling agreements to lower the cost of expensive therapies. These are known as supplemental rebate agreements. Almost every state engages in these practices, mainly through three main drug purchasing pools.1 While such purchasing pools can help Medicaid programs purchase high-cost drugs for their members at discounted rates, they are unlikely to address the unique financial challenges associated with these drugs; for instance, cost-sharing pools don’t protect against a wave of gene therapies entering the market at the same time, nor would they protect payers in the event the therapy didn’t function as promised. Without more innovative value-based payment models, Medicaid plans could see scores of members hit their max out-of-pocket expense after one therapy.

While variation exists in how different state Medicaid programs determine coverage guidelines for high-cost drugs, typically states rely on advisory groups--commonly known as Pharmacy and Therapeutics Committees or drug use boards—to advise Medicaid leaders on the best path for these drugs’ prescription. The make-up of these committees varies between states, but the majority participate in similar activities surrounding utilization management.

Led by these advisory groups, select state Medicaid programs have begun to innovative and to try to protect themselves from the growing financial risks associated with high-cost drugs. To date these innovations have taken two forms: subscription and performance-based payment models.

• Subscription-based contracts enable Medicaid to pay the manufacturer a flat fee per member per month PMPM in exchange for unfettered access to the therapy.
• Performance-based agreements involve payments to, or rebates from, a manufacturer based on how well the drug performs (using pre-determined milestones).

Subscription-based models have been successfully implemented in Louisiana and Washington, while Oklahoma is the first state to attempt to engage manufacturers in performance-based agreements. Yet these strategies haven’t become as popular in the market as many analysts predicted. Instead, state Medicaid programs found themselves set back negotiating against powerful drug manufacturers unwilling to accept the risk that makes these contracts feasible.

Requirements  - What does it take to set up an alternative drug payment model?

• State Plan Amendment (SPA) for approval
  A Medicaid or CHIP state plan amendment is an agreement with the federal government (CMS) describing how that state will administer health benefits and how CMS will provide funds to bolster the state budget. When a state wants to change their policies, they submit an SPA to CMS for approval.

OR

• Section 1115 Demonstration Waiver
  Section 1115 of the Social Security Act allows the Health and Human Services secretary to approve “experimental, pilot, or demonstration projects,” that are likely to promote the values of the Center for Medicaid. These innovative contracting models found support under the Trump Administration who launched pilot programs.