CMS Approves Michigan’s State Plan Amendment

In a wide-ranging speech on CMS’s efforts to lower Medicaid drug costs, Administrator Seema Verma announced yesterday that CMS has approved Michigan’s proposed state plan amendment to utilize value-based payment arrangements with drug manufacturers. With CMS’s blessing, Michigan can now enter contracts with pharmaceutical companies in which manufacturers provide the state supplemental rebates when their drugs fail to meet specified treatment benchmarks.

Michigan is the second state that has received CMS’s approval to pursue value-based purchasing agreements. In June, CMS announced its approval of Oklahoma’s similar proposal to negotiate supplemental rebate agreements as part of value-based purchasing arrangements with drug manufacturers. More specifically, as we explained at the time, Oklahoma’s proposal sought assurance from CMS that the supplemental rebates it would receive under a value-based purchasing agreement would not re-set the manufacturer’s “best price” under the state’s Medicaid program.

Following CMS’s approval of the Oklahoma proposal, we predicted that other state Medicaid programs would begin adopting value-based payment models.  The Michigan announcement makes this prediction all the more likely.  Indeed, Verma suggested that more alternative payment arrangements are needed to modernize payment policies.  These could include “drug payments over time only if the patient achieves certain clinical outcomes; drug payments through a shared savings approach based on the drug’s impact on a patient’s total cost of care; and drug payments under a subscription approach, with an upfront-fee in exchange for as many doses as clinically necessary.”  Stay tuned to see whether other states follow Oklahoma’s and Michigan’s lead.