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CMS Approves Value-Based Arrangement; Denies Closed Formulary Request

The Centers for Medicare & Medicaid Services (CMS) approved a proposal to allow Oklahoma to negotiate supplemental rebates involving Medicaid value-based purchasing arrangements with drug manufacturers. The same day, the agency rejected Massachusetts’ request to create a closed formulary to reduce high drug costs under the state’s Section 1115 Medicaid demonstration waiver.

Oklahoma Proposal

With CMS’ approval of the state plan amendment (SPA) proposal, Oklahoma is the first state cleared to pursue value-based purchasing agreements for supplemental rebates with manufacturers.

Provisions in the SPA allow the state and manufacturers to enter into tailored agreements that set benchmarks based on health outcomes and identify targeted populations for which the benchmarks will be measured and evaluated. Under the proposal, the value-based purchasing arrangements could result in extra rebates to the state if clinical outcomes are not achieved.

Promoting value-based payments is one of the initiatives outlined in the American Patients First Blueprint, which captures the administration’s plan to combat high drug prices.

Massachusetts Proposal

Meanwhile, CMS denied Massachusetts’ waiver request to create a closed formulary for Medicaid outpatient prescription drugs. The waiver would have permitted the state to pursue a selective and more cost effective specialty pharmacy network.

While the agency expressed support of the state’s efforts to reduce drug costs, CMS noted that the formulary was rejected because the waiver application failed to meet certain criteria under the federal Medicaid Drug Rebate Program. The agency offered technical assistance in identifying other innovative drug coverage options. CMS also rejected the specialty pharmacy network, as its implementation was dependent on the proposed closed formulary.

Contact Senior Director of Policy Erin O’Malley at eomalley@essentialhospitals.org or 202.585.0127 with questions.

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About the Author

Gontscharow is a senior policy analyst for America's Essential Hospitals.