Regulatory Barriers & Challenges

The U.S. regulatory environment has not kept pace with the development of innovative payment models. Delivering on the promise of value-based contracts will require the removal of regulatory barriers imposed by the Medicaid Best Price program and the federal Anti-Kickback Statute.

What’s the issue?  

Value-based contracts – linking coverage and reimbursement levels to a treatment’s effectiveness – can improve access to prescription medicines and make them more affordable for both patients and payers. But efforts between manufacturers and payers to develop value-based contracts have been stymied by regulatory barriers.

What are the regulatory barriers standing in the way of value-based contracts?

For value-based contracts to achieve their full potential, current regulatory barriers associated with the Medicaid “Best Price” provision of the Medicaid Drug Rebate Program and the federal Anti-Kickback Statute (AKS) should be addressed. 

While some parts of the U.S. health care system are moving quickly to implement value-based payment and care delivery models, adoption of value-based contracts for biopharmaceuticals has been slower due to numerous regulatory barriers and challenges that inhibit widespread implementation of the model. Because value-based contracts have the potential to improve patient access to needed medications while reducing overall health care costs, regulatory barriers that prevent this model from achieving its full potential should be removed.

An NPC study published in 2018, “Regulatory Barriers Impair Alignment of Biopharmaceutical Price and Value,” identified key regulatory and legal barriers that are standing in the way of advancing value-based contracts. These barriers include the Medicaid “Best Price” provision and the federal Anti-Kickback Statute (AKS), which governs how organizations can partner with each other. 

Regulatory Barriers Impair Alignment of Biopharmaceutical Price and Value

White Paper: Regulatory Barriers Impair Alignment of Biopharmaceutical Price and Value

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Medicaid Best Price 

A survey conducted by NPC and the Duke Margolis Center for Health Policy found that both payers and biopharmaceutical manufacturers identify Medicaid Best Price as a major barrier to implementing value-based contracts and a leading cause of failure during the contract negotiation process. As value-based arrangements have gained traction in the U.S., calls to reform Medicaid Best Price have intensified.  

NPC’s 2018 study on regulatory barriers identified a potential policy solution: The government could create a carve-out so that Medicaid’s best price caps, which limit the rebates that manufacturers can provide for medications covered under Medicaid, do not apply to value-based contracts. Medicaid’s best price is set quarterly based on the single lowest price available from the manufacturer to any U.S. entity, such as payers and providers. Because the best-price provision stipulates that a manufacturer must provide Medicaid either the maximum rebate in the market or a 23.1% rebate, whichever is higher, the current rule increases the cost of contracting and creates a financial incentive to limit rebates on applicable medications. 

In 2020, the Centers for Medicare and Medicaid Services (CMS) released a proposed rule that would amend the definition of Medicaid Best Price to promote greater adoption of value-based payment arrangements. While proposed changes represent a good first step, NPC recommended in public comments that ambiguities and operational challenges should be resolved, and CMS should consider more simplistic and less burdensome approaches to resolve best price issues. 

Given growing stakeholder desire to amend Medicaid Best Price, it’s important to understand the pros and cons associated with policy proposals aimed at reforming the current rule. For example, how will a proposed policy impact states (e.g., lost rebates, potential for manufacturers to game the system, operational challenges) or policy developers (e.g., risk of unintentionally setting new best price thresholds, operational challenges)? To explore these questions, NPC is partnering with the MIT Center for Biomedical Innovation’s Financing and Reimbursement of Cures in the US (FoCUS) project to conduct two analyses aimed at understanding how potential reforms to Medicaid Best Price would affect both curative, as well as long-term, repeat administration therapeutics. The objective of both projects is to help broaden the dialogue surrounding curative and chronic therapies and to expedite the transformation of Medicaid Best Price. 

The Anti-Kickback Statute 

Another regulatory barrier inhibiting widespread adoption of value-based contracts is the federal Anti-Kickback Statute (AKS). The AKS effectively prohibits manufacturers from utilizing risk management tools that could bolster patient outcomes and save money in federal health care programs. Manufacturers in value-based arrangements take on the risk for successful outcomes. For example, if a medication does not work for a patient, the manufacturer loses money, even if the failure is due to factors out of the manufacturer’s control. In addition, the current statute threatens large penalties for providing anything of value that could be seen as driving business their way.  

In NPC’s study on regulatory barriers, researchers recommended that the government create a safe harbor for value-based contracts so that manufacturers could institute programs aimed at giving the patient the best chance of successful treatment, including patient education, nurse coaching, case management support, benefit assistance, adverse event monitoring and outcomes monitoring.  

As policymakers consider opportunities to promote the advancement of value-based contracting, it’s critical that the application of the AKS to value-based contracts is clarified and reformed in a manner that supports the transition to value-based reimbursement.