Transition to Value-Based Health Care: Challenges and Opportunities for the Pharmaceutical Industry. June 7, 2017

Transcription

1 Transition to Value-Based Health Care: Challenges and Opportunities for the Pharmaceutical Industry June 7, 2017 Eve Brunts +1 (617) Alison Fethke +1 (312)

2 Agenda Overview Legal Challenges Operational Challenges Future Opportunities Ropes & Gray Resources 2 2

3 Overview Concept of Value-Based Contracting Payment linked to value provided, rather than to volume sold Price negotiations are informed by expected patient outcomes or related cost savings The price of a product is adjusted after purchase based on patient outcomes or cost savings Adjustments can be both up (if performance achieves expected patient outcomes or cost savings) and down (if performance does not) Compensation is provided if product performance if unexpected patient outcomes or costs 3 3

4 Overview Significant Interest Pharmaceutical industry interested in exploring value-based contracting with both payers and providers Meet strategic objectives Respond to perceived customer need Appearance versus reality Potential Opportunities Mitigate market access restrictions or support higher prices (particularly for products that payors may be reluctant to cover on launch) Differentiate from competitors by demonstrating value Generate real-world evidence about a product Legal and Operational Challenges Many concerns the same for payer v. provider arrangements but some key distinctions 4 4

5 Overview U.S. Health Plan Interest in Entering into Outcomes-Based Contracts with Manufacturers* Hepatitis C 10% 13% 15% 40% 23% Oncology 13% 18% 18% 33% 20% Multiple sclerosis 18% 20% 28% 20% 15% Rheumatoid arthritis 20% 13% 28% 28% 13% Hemophilia 41% 22% 24% 5% 7% IBD 21% 28% 28% 18% 5% HIV 25% 28% 28% 15% 5% Growth deficiency 49% 27% 20% 5% Very Low Low Moderate High Very High *Most U.S. Payers Are Eyeing Outcomes-Based Drug Pricing: Report, Tracy Staton (June 20, 2016) 5 5

6 Overview Public Examples Manufacturer Payor(s) / Years Drug (Indication) Summary Amgen Cigna (2016) CVS Health (2015) Harvard Pilgrim (2017) Prime Therapeutics (2015) Repatha (cholesterol) Link net price to expected LDL cholesterol reductions and appropriate patient utilization (Cigna / CVS / Harvard Pilgrim), payments for poor adherence and payment cap to address unusually high use (CVS / Harvard Pilgrim / Prime), rebates for poor effectiveness (heart attack or stroke) (Harvard Pilgrim) Amgen Harvard Pilgrim ( ) Enbrel (rheumatoid arthritis) Discounts based on number of measurements including patient compliance, dose escalation and steroid interventions AstraZeneca Express Scripts (2015) Iressa (lung-cancer) Reimburses costs if patient stops treatment before third prescription fill Eli Lilly Harvard Pilgrim ( ) Forteo (osteoporosis) Discount based on improved adherence compared to benchmark Eli Lilly Harvard Pilgrim (2016) Trulicity (diabetes) Rebates based on patients blood sugar targets EMD Serono Cigna ( ) Prime Therapeutics (2012) Merck Aetna (2016) Cigna (2009) Novartis Aetna (2016) Cigna (2016) Harvard Pilgrim (2016) Rebif (MS) Januvia and Janumet (diabetes) Entresto (heart failure) Discounts based on adherence and relapse rate (Cigna), rebates based on total cost to plan and adherence (Prime) Discount based on effectiveness (Aetna) or based on benchmarks for adherence and blood sugar (Cigna) Discount based on rate of heart failure hospitalization (Cigna / Harvard Pilgrim) or based on replicating clinical trial results (Aetna) Sanofi/ Regeneron Cigna (2016) Prime Therapeutics (2015) Praluent (cholesterol) 6 Negotiated discount plus additional discount if LDL cholesterol reduction doesn t match clinical trial results (Cigna) or based on adherence and cap on utilization (Prime) 6

7 Overview Potential Value-Based Contracting Approaches Price Adjustment: Manufacturer pays a rebate if clinical outcomes are below expectations (e.g., outcomes are less successful than reported in clinical trials or compared to patients taking competitor drugs) or clinical costs are higher than expected Shared Savings: Manufacturer shares in any cost savings attributable to the drug Shared Payment: Manufacturer shares in any enhanced payments from payers attributable to impact of drug use Make Whole: Reimbursement for costs to treat complications (e.g., above baseline number/percentage) 7 7

8 Overview Potential Value-Based Contracting Approaches Trial: Trial period during which the drug is jointly funded, or provided without charge, and outcomes are monitored Indication-Specific Pricing: Pricing depends on approved indication (higher if used for indication with stronger outcomes) Fixed Duration: Payment for a standard duration of therapy, regardless of the duration required to achieve the desired outcome Caps: Cap on total costs or number of doses for which payor pays, with manufacturer funding all additional expenses Legal Concerns May Vary Depending on General Approach and Particular Structure 8 8

9 Agenda Overview Legal Challenges Operational Challenges Future Opportunities Ropes & Gray Resources 9 9

10 Legal Challenges Value-based contracting arrangements raise a number of legal challenges Application of traditional laws to innovative contracting arrangements is not always clear Uncertainty requires more careful consideration of innovative value-based contracting proposals 10 10

11 Legal Challenges Key Fraud and Abuse Laws Anti-Kickback Statute False Claims Act (FCA) CMP Law (Gainsharing) Transparency Laws Summary Prohibits knowing solicitation, offer, payment, or receipt of anything of value whatsoever in order to generate business reimbursable (directly or as part of a service) under federal health care programs Prohibits knowingly presenting or causing to be presented a false claim for payment to the federal government Additional mechanism to enforce the Anti-Kickback Statute Prohibits payments by hospitals to physicians to induce reduction or limitation of medically necessary services to hospital patients covered under federal health care programs Law does not apply to pharmaceutical manufacturers but government guidance may provide analytical framework for assessing risk-sharing arrangements Requires manufacturers to track and report payments and other transfers of value to certain health care providers Discounts/rebates are generally exempt from reporting and most manufacturers apply exemption to all commercial transactions involving the sale of products/services 11 11

12 Legal Challenges Other Laws Government Value-Based Payment Programs FDA Promotional Restrictions FDA Adverse Event Reporting Privacy Medicaid Drug Rebate Program Antitrust State Insurance Laws Corporate Practice of Medicine Summary Limits who may participate in programs and what financial arrangements among participants and third parties are permitted Government may address legal risks with agency guidance or waivers (if authorized) (e.g., Medicare Shared Savings Program) Government may not always include pharmaceutical companies in programs or extend waivers/interpretive flexibility to manufacturers (e.g., Comprehensive Care for Joint Replacement Model) Limits the ability of manufacturers to make communications inconsistent with approved labeling about products Requires that communications be truthful, not misleading, objective and balanced Permits exchange of scientific information Requires manufacturer reporting to FDA of adverse drug experience information Manufacturer has enhanced access to adverse event data generated in connection with the measurement of outcomes Limits the ability of health plans, health care providers and their respective business associates to use and disclose individually identifiable health information Requires manufacturers to provide specific rebates to state Medicaid programs for outpatient prescription drugs dispensed to Medicaid patients in exchange for state Medicaid program coverage Prohibits pricing discrimination or exclusive contracting in connection with sale of products that could result in competitive harm States vary in how they regulate the sharing of health insurance risk between insurance companies and providers or other entities State corporate practice of medicine laws generally prohibit corporate entities from practicing medicine or employing physicians to provide medical services, as such entities are not themselves licensed to practice medicine Consider including contract provisions to ensure that independent clinical decision-making is maintained 12 12

13 Legal Challenges Federal Anti-Kickback Statute Prohibits knowing solicitation, offer, payment, or receipt of anything of value in order to generate business reimbursable (directly or as part of a service) under Federal health care programs Anti-Kickback Concerns Potentially substantial value provided to provider or payer Assumption of financial risk for provider or payer operations Premise for the Value Provided Compensation for not receiving the anticipated bargained-for product value consistent with the manufacturer s claims or the agreed-upon expectations 13 13

14 Legal Challenges Federal Anti-Kickback Statute Responding to Risk Potential Protection Discount Safe Harbor» Department of Justice (DOJ) evolving position Warranty Safe Harbor Managed Care Safe Harbors Facts and Circumstances Analysis Renewed government scrutiny of arrangements with pharmacy benefit managers (PBMs) Gainsharing guidance Call for Enhanced/Clarified Protection February 2017 PhRMA and AdvaMed letters to HHS Office of Inspector General (OIG) in response to the annual solicitation by OIG call for developing new safe harbors and modifying existing safe harbors 14 14

15 Legal Challenges Federal Anti-Kickback Statute PhRMA Letter to OIG (February 27, 2017) Today, as our healthcare system shifts toward improving patient health by focusing on quality and value over quantity of care, it is imperative that the AKS safe harbors keep pace and evolve to permit and encourage value-based arrangements. Existing AKS safe harbors, developed under a fee-for-service regime, do not reflect many emerging arrangements designed to promote value, quality, and cost-containment. This misalignment results in uncertainty about the applicability of existing AKS safe harbors and may impact the decisions of payors, providers, and biopharmaceutical companies to enter into beneficial arrangements that, if properly structured, could improve patient care without raising risk of fraud and abuse. Our recommendations therefore focus on new or modified safe harbors that would provide a clearer path for innovative, low-risk arrangements that align payments for prescription drugs and other healthcare products with their value

16 Legal Challenges Discount Safe Harbor Protected discount is a reduction in the amount a buyer is charged for an item or service based on an arm s-length transaction Includes rebates not given at the time of sale if methodology disclosed Excludes Cash payments or equivalents Supplying good/service without charge or at a reduced charge to induce purchase of a different good/service unless both reimbursed by federal health care programs pursuant to the same methodology (bundled discount) Reduction in price applicable to one payer but not to federal health care programs Services under personal services contract Warranties (separate safe harbor) Expectation that discount will be given or disclosed at time of sale Value not retroactively characterized as discount 16 16

17 Legal Challenges Discount Safe Harbor Sellor/Offeror Obligations Depends on the type of buyer Provider Fully and accurately disclose the discount on an invoice or similar statement If the amount of the discount is not known at the time of the sale, then the discount methodology must be described» Subsequent notice of the discount must be provided (reconciliation statement) (Cost report provider only) Notice provided to the customer of the customer s obligation to report the discount No action taken to impede the customer from fulfilling its obligations Managed Care Plan (Medicare Advantage and Medicaid Risk Plans) No obligation to disclose discount» But disclosure mitigates risk if not full compliance with safe harbor 17 17

18 Legal Challenges Discounts under Federal Anti-Kickback Statute The government s position on the scope of discount safe harbor is evolving and creates tension with value-based contracting Allegations that rebates tied to active interventions to switch prescriptions from competitor drugs and/or maintain patients on drugs Long-Term Care Pharmacy Settlements» Amgen (2013), Johnson & Johnson (2013), Omnicare (2014) Specialty Pharmacy Settlements» Accredo (2015), Bioscrip (2014), Novartis (2015) 18 18

19 Legal Challenges Discounts under Federal Anti-Kickback Statute Cases in U.S. District Court for the District of Massachusetts United States ex rel. Banigan v. Organon USA, Inc. Allegations: Long-term care pharmacy and pharmaceutical company entered into purchasing agreement involving a volume-based discount in exchange for promotion of potential financial benefits to pharmacy clients Court Decision: Discount safe harbor protection is available only if there was actual disclosure of the discount to the government United States v. Coloplast Corp. Allegations: Medical device company conditioned price reductions on conversion of patients from a competitor s product DOJ Statement of Interest: A discount is a reduction in price conditioned only on the purchase of the product or service at issue. If a reduction in price is conditioned on more than a simple purchase, the reduction is not a protected discount. Broadly interpreted, a discount that is expressly conditioned on performance may not be considered to be a discount 19 19

20 Legal Challenges Warranty Safe Harbor Protects any payment or exchange of anything of value under a warranty provided by a manufacturer or supplier of an item to the buyer The buyer could be a patient or health care provider A warranty includes any written undertaking in connection with product sale to refund, repair, replace or take other remedial action with respect to the product if the product fails to meet required specifications (15 U.S.C. 2301(6)) The government has taken the position that warranty must be related to product failure 20 20

21 Legal Challenges Warranty Safe Harbor Manufacturer Obligations Fully and accurately disclose price reduction of the item (including a free item) obtained as part of the warranty on the invoice or statement submitted to the customer If amount of price reduction is not known at the time of sale, the existence described and subsequent notice of price reduction Notify customer of obligations to report price reduction and respond to government requests for information Not provide any value to any individual (other than a patient) or entity for any medical, surgical, or hospital expense incurred by a patient other than for the cost of the item itself 21 21

22 Legal Challenges OIG Position on Relationship Between Discounts and Warranties Warranties are not protected under the discount safe harbor, but the same disclosure requirements are required Comment: One pacemaker manufacturer noted that a particular warranty complied with the discount exception, implying that it need not comply with this warranty provision. Response: We do not believe that warranty arrangements fit within the discount safe harbor provision, and are revising that provision accordingly. However, we agree that some of the policies underlying the discount exception should apply to warranties. Consequently, with respect to any reductions of equipment prices offered as part of a warranty agreement, we are requiring the same disclosure requirements as contained in the discount provision

23 Legal Challenges OIG Advisory Opinion (July 3, 2001) Sale of therapeutic mattresses to skilled nursing facility with purchase of skin/wound care products and warranty Fully and accurately disclose the price reduction of the item (including a free item) obtained as part of the warranty on the invoice or statement submitted to the customer Program Replacement of all facility mattresses with purchase of therapeutic mattresses and other products at fixed price per bed Fixed daily fee for skin/wound care program including supplies Training/protocols Coverage of liability insurance deductibles paid resulting from judgment for skin/wound care deficiencies Full disclosure (invoices/statements) and no other financial arrangements (no swapping potential) OIG response Fixed price per bed/fixed daily fee for skin/wound care program is bundled discount but facility generally reimbursed under global payment methodology Warranty does not fit within safe harbor because safe harbor protects only items and warranty applies to overall program but items are linchpin of program and warranty so no significant increase in risk of abuse 23 23

24 Legal Challenges Three Managed Care Safe Harbors Price reductions offered by providers to health plans Protects a reduction in price offered by a health care provider ( i.e., entity under contract with health plan to furnish items or services to members covers by the health plan, Medicare or a state health care program) to a health plan for the sole purpose of furnishing to enrollees items or services Price reductions offered to eligible managed care plans (MCOs) Protects payments between an eligible MCO and first-tier contractors (i.e., entity with direct contract with MCO to provide or arrange for items or services) (or between first-tier contractors and downstream contractors) Price reductions offered by contractors with substantial financial risk to MCOs Protects payments between qualified MCOs and first-tier contractors with substantial financial risk meeting specific requirements (or between first-tier contractors and downstream contractors) Scope of safe harbor parties vary Eligible third party payors Eligible contractors Safe harbors generally require the following (among other requirements): Signed written agreement for not less than one year specifying the items and services and methodology in advance No swapping and no shifting costs to claim increased payments from a federal health care program 24 24

25 Legal Challenges Complexities Associated with Safe Harbor Compliance Discount Safe Harbor Accounting for cost of implementing and administering arrangement Treatment of extra value provided to support implementation Provision of, and payment for, data to administer the arrangement Bundling of services/other products Offering price adjustments specific to a third-party payor Warranty Safe Harbor OIG position that a warranty must be related to product failure Safe harbor protection only for coverage of the cost of an item and not medical costs Managed Care Safe Harbors Eligibility requirements 25 25

26 Legal Challenges Considerations for Facts-and-Circumstances Analysis Renewed DOJ Scrutiny of PBM/Manufacturer Relationships Concern that PBM activities may affect drug prices and PBMs are in a position to influence drug utilization AstraZeneca/Medco Settlement (2015) Allegation that manufacturer provided payments to PBM in exchange for PBM agreement to maintain a product s sole and exclusive formulary status and to perform marketing activities supporting the product with payments structured as price concessions on other products Ongoing DOJ investigation (Southern District of New York) PBM/manufacturer relationships 26 26

27 Legal Challenges Considerations for Facts-and-Circumstances Analysis Risk-Sharing Arrangements Risk-sharing arrangements with providers that involve sharing in cost savings or related third party payor payments/penalties may be viewed as a gainsharing arrangement Gainsharing arrangements are often viewed as suspect by the OIG OIG advisory opinions on gainsharing provide most comprehensive guidance Structuring a risk-sharing arrangement to comply with OIG advisory opinions may reduce the risk of an adverse enforcement action or imposition of penalties Other factors may be relevant, including whether arrangement relates to federal or state risk-sharing program and the terms of that program 27 27

28 Legal Challenges Safeguards for Risk-Sharing Arrangements in OIG Advisory Opinions Cost-savings measures are objective and verifiable, clearly and separately identified, and transparent in terms of cost savings Quality-based measures are listed in or cited by a reliable source, such as the CMS/JCAHO Specification Manual for National Hospital Quality Measures Payments are not permitted with respect to performance above or below thresholds established by reference to baseline hospital performance and hospital/industry data (aimed at ensuring the program doesn t incentivize inappropriate reductions or limitations in services) Physicians have access to the same selection of items, supplies and devices as available prior to the program s commencement, and have access to new technology as applicable Payments are limited in duration and amount (including caps on amounts earned), and cost-savings payments are tied to achievement of the costsavings metrics Payments do not include amounts attributable to increased volume of procedures performed on federal health care program beneficiaries Periodic review is conducted to protect against inappropriate reductions or limitations in services An independent monitor is engaged to review the program initially and annually to protect against inappropriate reductions or limitations in services 28 28

29 Legal Challenges Government Pricing Potential impact of value-based contracting on government pricing can impede willingness to contract Lack of specific guidance CMS has acknowledged issue but not offered specific guidance Medicaid Drug Rebate Program Final Rule (February 1, 2016) CMS recognizes the value of value-based purchasing arrangements in the pharmaceutical marketplace, especially when they benefit patents, and is considering how to provide more specific guidance on this matter, including how such arrangements affect a manufacturer s best price. Medicaid Drug Rebate Program Notice, Release No. 99 (July 14, 2016) CMS has concluded that the impact on a manufacturer s best price will differ depending on the structure of the [valuebased purchasing] arrangement. Complexities associated with government pricing Delayed pricing adjustments Conferring value other than a reduction in unit price Providing related services or tools 29 29

30 Legal Challenges FDA Promotional Concerns Value-based contracting proposal or implemented arrangement could evidence a new intended use (i.e., off-label use) Communications by manufacturer are inconsistent with the labeling Communications by manufacturer violate other FDA promotional rules (e.g., by being false or misleading, not balanced) Examples of Potential Concerns Rebate based on patient outcome not consistent with labeling Manufacturer involvement in implementing protocols/policies that apply to unapproved uses Manufacturer covers costs of clinical care resulting from unapproved use 30 30

31 Legal Challenges FDA s broad view of intended use Status of FDA regulation issued January 2017 Inapplicability of First Amendment protections to manufacturer conduct Considerations related to the claim What makes a claim? Stand-alone clinical claim vs. health care economic information 31 31

32 Legal Challenges FDA Draft Guidance: Medical Product Communications that are Consistent with the Labeling Questions and Answers (Jan. 19, 2017) When is information consistent with the labeling? Factor 1: Conditions of Use Indication Do the reps/suggestions in the communication relate to a different indication? Patient Population Is the patient population represented or suggested in the communication outside the approved/cleared patient population? Limitations and Directions for Handling/Use Do the reps/suggestions in the communication conflict with the use limitations or directions for handling, preparing, and/or using the product? Dosing/Administration Do the reps/suggestions conflict with the recommended dosage or use regimen, route of administration, or strength(s)? Factor 2: Potential to Increase Risk of Harm Factor 3: Ability to Use the Product Safely and Effectively 32 32

33 Legal Challenges When is information appropriately substantiated? Grounded in fact and science and presented with appropriate context Scientifically appropriate and statistically sound Accurately characterized, including limitations of the strength of the evidence and the conclusions that can be drawn from it Common challenges Reliance on real-world evidence Off-label use as the standard of care Adverse event metrics 33 33

34 Legal Challenges FDA Regulation of Communications Involving Health Economic Information Recent Changes FDAMA 114 amended (December 2016) Contemplated audience can include certain providers Audience should have knowledge and expertise in the area of health care economic analysis Enhanced ability to provide underlying data as well as analysis Components of analysis now expressly only need to be supported by competent and reliable scientific evidence FDA Guidance Drug and Device Manufacturer Communications with Payors, Formulary Committees, and Similar Entities Questions and Answers (January 2017) Q. A.11. What are the Agency s policies regarding risk-sharing and other value-based contracts between firms and payors? A. A.11. This guidance addresses the communication of HCEI to payors, which may include communication of HCEI in the course of discussions between firms and payors related to risksharing and other value-based contracts. This guidance, however, is not intended to address the terms of contracts between firms and payors. FDA does not regulate the terms of contracts between firms and payors

35 Legal Challenges Privacy Concerns Federal and state laws limit the ability of health care providers, health plans, and business associates to use and disclose individually identifiable health information Implementation of value-based arrangements may require manufacturer access to patient information Information may be needed to confirm outcomes or determine basis for outcomes Value-based arrangements may require tracking of patients longitudinally, which may require a patient identifier Potential Options Consider use of de-identified data Consider use of patient authorizations Consider scope of permitted uses without authorization Argument that disclosure of protected health information under HIPAA is permitted without authorization for payment purposes? Consider use of third party to collect/analyze data as business associate of health plan or healthcare provider 35 35

36 Agenda Overview Legal Challenges Operational Challenges Future Opportunities Ropes & Gray Resources 36 36

37 Operational Challenges Selecting the Partner Infrastructure/resources/components to undertake valuebased contracting Proposal Engaging interest/ensuring involvement of stakeholders Resource commitment to development of proposal and negotiation of contract Implementation Ongoing resource commitment Tracking and analyzing data Assessing causality Managing expectations and addressing potential disputes 37 37

38 Operational Challenges Value-Based Contracting Defining the performance metric Determining how to measure the performance metric Patients Comparison baseline period/patient group Relevant data Eliminating other impacts Defining the price adjustment/compensation and timing on payment Product/performance support commitments Training, clinical protocols, exclusive use Data access and use Need for implementation period 38 38

39 Operational Challenges Collateral Contract Impact (Providers) Contracts with most favored nation clauses Ability to distinguish price/other terms/purchaser GPO contracts Obligation to pay GPO fees on product purchased outside contract Obligation to offer same price to all GPO members if offered to any GPO member 39 39

40 Operational Challenges Payor Perspective/Concerns Changing membership makes long-term cost savings uncertain Cost savings across continuum of care more relevant More likely to have infrastructure to implement value-based contracting Sophisticated claims data collection/analysis 40 40

41 Operational Challenges Provider Perspective/Concerns Less likely to have infrastructure to implement value-based contracting See Slide 42 on High Medication Management Readiness Cost savings across continuum of care less relevant unless integrated delivery network Potential need to engage multiple stakeholders Limited attention/competing initiatives Quality/cost initiatives more likely to focus on traditional low-hanging fruit such as reducing hospital inpatient stays or emergency room visits or eliminating unnecessary diagnostic tests 41 41

42 Operational Challenges ACOs Surveyed That Reported High Medication Management Readiness* Quantify medication cost offsets 7 Notify care providers when Rx is filled 9 Educate patients about alternatives/implications when determining the recommended medication care plan Share potential drug-drug/drug-disease/polypharmacy concerns with the care team Capture patient-reported outcomes electronically 15 Implement protocols to avoid duplicate medications/polypharmacy 17 Notify care providers when Rx is prescribed 20 Involve pharmacist in direct patient care Balance financial incentives with quality metrics for a diversity of conditions Alert providers of preventive care gaps 28 Synchronize formularies across different care sites 35 Use visit summaries to list all Rx, potential adverse reactions, and clear directors for use Identify potential drug-drug, drug-disease, and/or polypharmacy concerns Encourage appropriate generic use with formularies 50 View prescription and medical data in 1 system 54 Transmit prescriptions electronically *Dubois, Robert W., et al. "Are ACOs Ready to be Accountable for Medication Use?" Journal of Managed Care Pharmacy (2014)

43 Agenda Overview Legal Challenges Operational Challenges Future Opportunities Ropes & Gray Resources 43 43

44 Future Opportunities Trend towards value-based payment for health care expected to continue Uncertainty under Trump administration regarding certain Federal value-based payment initiatives State initiatives ongoing Private sector interest continues Providers continue to integrate and to invest in care delivery infrastructure, such as information technology and related support 44 44

45 Future Opportunities Indicia of Federal Position HHS Secretary Tom Price not supportive of mandatory value-based payment initiatives "I am a strong proponent and advocate for innovation, but I have seen in certain instances what is coming out of CMMI is a desire to require certain kind of treatment for certain diseases that may or may not be in the best interest of the patient (January 18, 2017) FDA Commissioner Scott Gottlieb has expressed support for valuebased pharmaceutical pricing models One way to make drug pricing more competitive is to implement selling models that tie the price of drugs more closely to the usefulness of the clinical setting in which they are being prescribed. However, existing regulations obstruct this type of market-oriented approach (July 11, 2016) 45 45

46 Future Opportunities Indicia of Federal Position After initially postponing them until October 2017, CMS further postponed the start date of four mandatory bundled payment models that had been set to take effect July 1, 2017 to January 1, 2018 Acute Myocardial Infarction Model and Coronary Artery Bypass Graft Model 90-day retrospective bundles Cardiac Rehabilitation Incentive Payment Model Comprehensive Care for Joint Replacement Model Expansion would have added bundled payments for hip/femur fracture treatment President Trump s proposed FY2018 HHS budget includes a reference to clarifying treatment of value-based [pharmaceutical] purchasing arrangements through an administrative action associated with the budget proposal 46 46

47 Future Opportunities State Initiatives Many state Medicaid programs have implemented some form of value-based payments The most common models are a per member per month payment tied to meeting performance expectations, episode-based payment schemes, and population-based payments where providers are held accountable for spending targets Episode-based and population-based models vary from state to state in their coverage of pharmaceuticals Example: The New York Delivery System Reform Incentive Payment Program uses MCOs and both episodic and continuous alternative payment systems to drive cost efficiency and quality outcomes. New York providers may choose from several value-based payment arrangements, all of which include the costs of drugs In 2016 Medicaid Drug Rebate Program Notice (#176), CMS encourages state Medicaid agencies to enter into value-based purchasing arrangements involving drugs and outlines how manufacturers should seek CMS guidance on these arrangements 47 47

48 Future Opportunities Potential Considerations to Enhance Opportunities Alignment with existing payor/provider initiatives Consider common health care quality measures Ability to demonstrate short-term impact Payor/provider need to differentiate Crowded disease state Simplicity Simple to measure treatment effects (e.g., cholesterol level or blood pressure) Clearly defined outcomes (e.g., tumor s response to treatment) Leverage existing infrastructure Data already collected by providers in routine course 48 48

49 Future Opportunities Potential Considerations to Enhance Opportunities Flexibility to explore alternatives Collaboration Demonstrate value of product through participation in research or quality improvement project designed to generate necessary data Test Case Demonstrate value of product by use in real world setting Results serve as case study» Arrangement through GPO and/or involving GPO member 49 49

50 Agenda Overview Legal Challenges Operational Challenges Future Opportunities Ropes & Gray Resources 50 50

51 Ropes & Gray Resources Value-Based Health Care Website Online hub for articles, webinars, research materials and other valuable resources dedicated to value-based health care, all organized by industry segments (including pharma) and topics Segments: Pharma; Digital Health/Tech Solution; Providers; Medical Device; Payors Topics: Fraud and Abuse/Compliance; Antitrust; Medicare; Medicaid; Private Payors Alternative Payment Models; IPAs and other Provider-Risk Bearing Organizations Analysis of rapidly evolving trends, developments and issues relating to value-based health care Tools including CLE presentations, compilations of research materials, hotline/help desk assistance and template agreements

52 Ropes & Gray Resources 52 52

53 Ropes & Gray Resources Transition to Value-Based Health Care Teleconference Series Impact of value-based health care through the lens of different industry segments Final installment Payors (Monday, June 19 th, 12:30-1:30pm ET) 53 53

54 For Further Questions Eve M. Brunts +1 (617) Alison Fethke +1 (312)