Oklahoma Signs the Nation’s First State Medicaid Value-Based Contracts for Rx Drugs

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On the heels of Oklahoma’s first-in-the-nation, value-based purchasing deal to improve adherence to an antipsychotic drug, the state’s Medicaid agency just signed its second value-based contract for a prescription drug used to treat serious bacterial skin infections.

While several private insurers have initiated value-based contracting, which links payments to a drug’s effectiveness and outcome, Oklahoma is the first state Medicaid program to initiate this payment reform innovation.

Oklahoma’s second contract, finalized this month, is with the pharmaceutical company Melinta for oritavancin (Orbativ), a drug used primarily to treat bacterial skin infections. Because oritavancin costs more than other treatments, the state Medicaid program had required prior authorization before paying for the drug. However, under the new value-based contract, prior authorization will no longer be required.

In return for having the drug listed as a first-line treatment, Melinta ensures that oritavancin will not result in a net increase in costs. While other drugs used to treat bacterial skin infections may require hospitalization for administration, oritavancin does not. While its purchase price is higher, oritavancin is not expected to cost the state Medicaid program more because it is expected to eliminate costly hospitalizations required by other drug options.

However, under the terms of the value-based contract, if the state does incur higher costs from oritavancin – despite the avoided hospitalizations — Melinta will be on the hook to cover those costs through additional rebates to the state.

Oklahoma’s contract with Melinta builds on its first-in-the-nation, value-based prescription drug contract signed in July, 2018. That contract is with the drug manufacturer Alkermes for the long-acting injectable, anti-psychotic drug aripiprazole lauroxil (Aristada). The contract is designed to reward increased patient adherence. Under the contract’s terms, as adherence targets are met – which result in greater drug usage, sales, and improved outcomes — the price the state pays for the drug decreases.

Each of these two value-based contracts is a unique, negotiated agreement that required time and trust between the state and drug manufacturer to execute. While Oklahoma initially approached larger drug manufacturers to enter into value-based contracting for high-priced, higher-profile drugs, such as those used to treat hepatitis C, Oklahoma to date has found success with smaller companies, which had greater flexibility to enter into innovative agreements with the state.

Each contract requires extensive data analysis to explore the relevant patient population characteristics and potential, measureable outcomes in order to design a viable agreement. Oklahoma’s groundbreaking work in Medicaid value-based contracting for prescription drugs is expected to pave the way for other states to pursue similar initiatives.

The National Academy for State Health Policy (NASHP) supported Oklahoma’s data analysis to build its contracts through a sub-grant from the Laura and John Arnold Foundation, which also supports NASHP’s Center for State Rx Drug Pricing.

SMART-D, the State Medicaid Alternative Reimbursement and Purchasing Test for High-Cost Drugs, also helped Oklahoma by supporting its successful application to the federal government for a state plan amendment that enabled it to enter into value-based contracts under its Medicaid Drug Rebate Program.

Earlier this year, more than 50 state leaders joined a session exploring Oklahoma’s value-based contracting at NASHP’s 31st Annual Health Policy Conference. In the coming months, NASHP will write more about value-based purchasing and sponsor a webinar to enable a national discussion on state value-based contracting for prescription drugs.