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Annuity Model

Senate Finance Committee chairman Chuck Grassley, R-IA, is hoping to introduce legislation enabling a new payment-over-time model based on durability of outcomes for high cost, curative treatments in Medicaid.

The legislation could be part of the prescription drug pricing package being developed by the Finance Committee, he told reporters during a 20 June briefing. “When it comes to Medicaid … there ought to be some equity for people in poverty with people that have private health insurance and higher income,” Grassley said.

“Many of these [treatments] end up saving money in the long term but states can’t afford it all in one year, or one payment, so let’s spread [the cost] out. Otherwise, how are you going to guarantee equity for people on Medicaid compared to other people that have access? And access is what we want.”

The Finance Committee package, which will cover pricing issues in Medicare Parts D and B and Medicaid, is being developed under the leadership of Grassley and ranking member Ron Wyden, D-OR. Among other provisions, the legislation is expected to include a limit on out-of-pocket costs in Part D.

The Senate Health, Education and Labor and Pensions Committee is also working on legislation aimed at lowering drug pricing, with a focus on enhancing generic drug and biosimilar competition. A markup of that bill is scheduled for 26 June. (Also see "Senate Bill Would Prevent Safety Label Carve-Outs From Delaying Approvals" - Pink Sheet, 20 Jun, 2019.)

In the Finance committee, some Democrats are concerned that the annuity-type payment model does nothing to inhibit high prices for cell and gene therapy and might even encourage them. Democrats have also discussed establishing the value of a treatment by a third party as part of the payment contract, an idea that would be a non-starter for product developers.

However, committee member Mark Warner, D-VA, is a proponent of value-based payment approaches and released a draft bill facilitating those kinds of arrangements for all drugs along with Sen. Bill Cassidy, R-LA, early this year. (Also see " Value-Based Contracting Bill Aims For Bipartisan Political Support" - Pink Sheet, 3 Feb, 2019.) The draft did not specifically address installment payments for cell and gene therapies but a final version of the bill is still pending.

Access To Treatment Will Save Money, Grassley Insists

In response to concerns that annuity payments would not lower costs, Grassley maintained “if people get their drugs on time, they don’t have to spend time in the hospital. So, we think we save money.”

Interest in the payment policy is growing as potentially curative cell and gene therapies are beginning to reach the market with price tags of $1m to $2m.

Others are on the horizon, including treatments for sickle cell disease, that could target large patient populations. Medicaid programs could have a serious problem with covering such treatments in part because they operate on annual budgets. (Also see "Paying For Gene Therapy: Medicaid Will Be ‘Canary In Coal Mine’ " - Pink Sheet, 5 May, 2019.)

Product developers have begun to engage with payers on annuity-type payment models but to date none have launched in the US. (Also see "Annuity Payment Model For Cures May Get Test Drive In Massachusetts" - Pink Sheet, 19 Feb, 2019.)

Regulatory and legal issues stand in the way. One potential problem is that incremental installment payments could trigger a new Medicaid best price. Another is that the Anti-Kickback statute has a safe harbor that protects discounts for up to two years, which might not allow enough time to establish a durability of effect.

CMS Dragging Its Feet On Annuity Payment Model

The Centers for Medicare and Medicaid Services has the authority either through demonstrations or regulations and guidance to address the best price issue but has yet to do so for annuity payment models.

The Trump administration has been so focused on policies aimed at lowering drug prices it may not be eager to address novel reimbursement policies for multi-million dollar treatments, American Society of Gene and Cell Therapy government relations consultant Remy Brim suggested in an interview. Brim is a VP with the BGR Group.

CMS Administrator Seema Verma said recently the agency is concerned some outcomes-based contracts could encourage higher list prices. (Also see "New Payment Models For Curative Treatments Have CMS’ Attention, Verma Says" - Pink Sheet, 23 May, 2019.)

Spark Therapeutics Inc. has requested that the Centers for Medicare and Medicaid Services conduct a pilot program through the Center for Medicare and Medicaid Innovation for an outcomes-based, annuity-type payment model for its gene therapy for inherited blindness, Luxturna (voretigene neparvovec). But no pilot has been announced to date.

If not legislation, congressional pressure could prompt CMS to move ahead with such a pilot, Brim pointed out. Chances are fairly modest that legislation on annuity-type payments will pass this congressional session, she observed. But the fact that the issue is being discussed at high levels in Congress and seems to be gaining traction is encouraging.

Medicaid And Sickle Cell Treatments

Product developers have been trying to avoid a situation where gene therapy for sickle cell disease reaches the market in the next year or so and Medicaid programs are overwhelmed by the cost, which will finally prod policymakers into action, Brim said. It’s unclear whether that scenario will play out.

Grassley had previously targeted mid-June for release of the Finance committee legislation but that schedule appears to be slipping. Grassley also said that although the committee has sought technical assistance from HHS on the legislative package, the department has not yet endorsed it. “I don’t think anyone is going to sign off on anything until you have the whole package,” he commented.

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