Q&A: Do Medicaid Alternative Payment Models for Prescription Drugs Add Value for States?

In late December, 2018, the National Academy for State Health Policy (NASHP) hosted a webinar exploring Oklahoma Medicaid agency’s use of innovative alternative payment models (APMs) through contracts negotiated with drug manufacturers, which link supplemental rebates to patient outcomes.

The webinar, Medicaid Alternative Payment Models for Prescription Drugs: Do They Add Value for States?, featured speakers from Oklahoma’s Health Care Authority, which obtained a Medicaid State Plan Amendment in June 2018 to implement the APM. Below is a summary of questions and answers about Oklahoma’s groundbreaking program taken from the webinar. A recording of the webinar and its slides are available here.

What are some examples of Oklahoma’s Medicaid APMs for prescription drugs?

Below is a chart outlining the drug, manufacturer, therapeutic class, and outcomes measured for Oklahoma’s first four APMs.

Drug Name Manufacturer Therapeutic Class Outcome Measured
Aripiprazole lauroxil (Aristada) Alkermes Long-acting, injectable antipsychotic Patient adherence to medication
Oritavancin (Orbativ) Melinta IV antibiotic for bacterial skin infections Net costs to the state
Fycompa Eisai Epilepsy Reduced hospitalizations
Invega Trinza and Sustenna Janssen/Johnson & Johnson Long-acting, injectable antipsychotic Overall population adherence

How much staff time is required for the negotiation and contracting processes? How can states balance the benefits of this innovation with the cost of administering the agreements?

Oklahoma received financial support from NASHP for initial analysis and staff time. As that support concludes, Oklahoma officials are currently discussing how the state can supply the staff time needed to complete the upfront work of these contracts. Officials report the Medicaid program must review utilization data to help determine if both parties are pursuing the right patient population, products, and disease states, etc. One potential source of funding for this work could be drug manufacturers. Oklahoma officials plan to discuss how this initiative could be funded sustainably with manufacturers and may build this financial risk into future agreements. Oklahoma is also considering imposing a fee on manufacturers to pay for the initial data aggregation.

Were the drugs selected in the four agreements chosen because of manufacturers’ willingness to engage in these contracts, or did Oklahoma’s Medicaid agency determine what drugs were selected?

Oklahoma wanted a variety of agreements to focus on different drugs in order to test potential APMs for other state Medicaid programs. Oklahoma found that both parties should come to the table with some ideas but expect and be open to discussion. Negotiations were most successful when manufacturers established potential parameters for an agreement before beginning contract discussions. Negotiations succeeded when both parties had an opportunity to have a trusting, but direct conversation about what product might be a good fit. Despite the need to compromise, Oklahoma was able to ensure that each contract had the potential to be beneficial and fair for both sides.

Do any of Oklahoma’s agreements use “fill rate” (the rate at which patients adhere to or fill their prescriptions) or “cure rate” (the proportion of people that are cured from a treatment) to determine value?

Fill rate is used in some of the agreements. Oklahoma is interested in cure rates as an outcome, but it is challenging to obtain accurate, timely outcomes data around cure rates. If Oklahoma officials can find reliable data that both parties can agree on, then they will likely move forward in this area.

Oklahoma has only executed financial APMs that focused on price-volume agreements (as volume increases, unit price decreases), market share, or utilization (adherence).Two of the executed contracts focused on drug adherence. Oklahoma’s first contract with Alkermes for a long-acting, injectable antipsychotic rewards increased patient adherence with a lower drug price for the state through additional rebates. Oklahoma also entered into a contract with Janssen/Johnson & Johnson for another long-action, injectable antipsychotic that focused on increased population level adherence.

Is Oklahoma Medicaid restricting the reimbursement of therapeutically-similar drugs that are not covered by the state’s APM agreements?

None of Oklahoma’s APM agreements involves “disadvantaging” or impeding access to any products not covered by the APM agreements, such as changing their status on the preferred drug list. Two of Oklahoma’s APM agreements do, however, entail removing the prior authorization requirement for the drug in question in exchange for a guarantee of overall cost neutrality (e.g., Melinta’s Orbactiv product and Eisai’s Fycompa product).

Are Oklahoma’s agreements restricted to specialty products?

No, Oklahoma’s agreements were not restricted to any particular drug product or class.

Did Oklahoma find there were high-cost, specialty drug manufacturers interested in APM opportunities?

Oklahoma officials initially approached manufacturers of high-cost, specialty drugs, but they were not interested in completing an APM agreement. Since the completion of the first four agreements, however, officials have considered an agreement where Oklahoma would pay for a very high-cost drug over a defined period of time (e.g., several years) or might pay a different rate depending on whether a person was or was not cured.

These types of manufacturers are beginning to discuss APMs, but it may be a bit early to put one of these kinds of products in the APM arena, but discussions are ongoing. From a manufacturer’s perspective, entering into specialty drug agreements can be challenging because the smaller patient pools who use these drugs make it more difficult to show a clear benefit around such measures as increased adherence or reduced hospitalizations.

When will Oklahoma see results?

Oklahoma’s APM contracts are one-year contracts and initial results will be available after mid-2019. Additional contract periods may be necessary to allow enough time to identity their financial impact.

How are Oklahoma’s APMs expected to reduce hospitalizations?

Oklahoma’s contract with the manufacturer Eisai measures reductions in hospitalizations following initiation of its epilepsy drug Fycompa. If Fycompa does not reduce hospitalizations, the state will receive money back in the form of supplemental rebates.

Oklahoma’s contract with Melinta for oritavancin (Orbativ) removes the requirement for prior authorization in return for an assurance that the state will not see a net increase in costs. Although it is a high-priced drug, oritavancin does not require hospitalization for administration like other drugs in its class, so reduced costly hospitalizations are expected.

Who is Oklahoma Medicaid’s pharmacy benefit manager?

Oklahoma’s Medicaid program is fee for service (FFS) and does not contract with a pharmacy benefits manager (PBM).  The Pharmacy Management Consultants and the Oklahoma Healthcare Authority are the pharmacy benefits administrators for the Oklahoma Medicaid program. The Pharmacy Management Consultants are a division of the Oklahoma University College of Pharmacy. This structure allows for data aggregation and analysis and also gives Oklahoma the capability to research other outcomes not necessarily stated in the contractual agreements, such as unintended outcomes, additional benefits, and other health-related outcomes.

Oklahoma is advancing APMs in a FFS environment. Would these APMs work in a state with Medicaid managed care?

Oklahoma officials noted that APM agreements may be easier to achieve in their FFS environment because it allows for efficient discussions and negotiations between just one payer and one manufacturer. While Oklahoma was the only state with APMs for Medicaid prescription drugs as of December 2018, Michigan has since followed Oklahoma’s lead, receiving federal approval in November 2018 for a Medicaid State Plan Amendment to enable APMs. Michigan operates several types of managed care programs that provide health services to Medicaid beneficiaries and may soon be able to offer valuable insights into achieving APM agreements in managed care settings. The success of APMs in states with Medicaid managed care will also depend on how each state sets up with its managed care organizations (MCOs).  Some states get all their data from MCOs and require them to follow one drug formulary, which would allow a state to more easily manage APMs.

Do the manufacturers Oklahoma currently contracts with have statewide services with all pharmacy outlets or do some manufacturers limit the distribution of their product? And, is this a factor when deciding whether to contract with a manufacturer?

To date, Oklahoma’s APMs have not caused changes in pharmacy outlets’ services. When there are more agreements involving specialty products, this may be more of an issue and require additional discussion, but Oklahoma officials believe it can be addressed and negotiated in their agreements.

More information on this topic is available at the University of Oklahoma’s College of Pharmacy’s presentation, Overcoming Barriers to Value-Based Contracting.