Overcoming the Legal and Regulatory

Hurdles to Value-Based Payment

Arrangements for Medical Products

December 2017

OvercomingtheLegalandRegulatoryHurdlestoValue-BasedPaymentArrangementsforMedicalProducts

WhitePaper

AbouttheDuke-MargolisCenterforHealthPolicyTheRobertJ.Margolis,MD,CenterforHealthPolicyatDukeUniversityisdirectedbyMarkMcClellan,MD,PhD,andbringstogetherexpertisefromtheWashington,DCpolicycommunity,DukeUniversityandDukeHealthtoaddressthemostpressingissuesinhealthpolicy.

TheCenter’smissionistoimprovehealthandthevalueofhealthcarebydevelopingandimplementingevidence-basedpolicysolutionslocally,nationally,andglobally.Formoreinformation,visithealthpolicy.duke.edu.

AuthorsGregoryW.DanielDeputyDirector,Duke-RobertJ.Margolis,MD,CenterforHealthPolicyandClinicalProfessor,FuquaSchoolofBusiness,DukeUniversityThomasBarkerPartnerandCo-Chair,HealthcarePractice,FoleyHoagArtiRaiElvinR.LattyProfessorofLawandco-Director,DukeLawCenterforInnovationPolicy,DukeLawSchool,DukeUniversityChristianSpringerAssociate,FoleyHoagLLP

MarianneHamiltonLopezResearchDirector,Duke-RobertJ.Margolis,MD,CenterforHealthPolicy,DukeUniversityJaneKalininaPolicyAdvisor,FoleyHoagLLPKatieGreeneResearchAssociate,Duke-RobertJ.Margolis,MD,CenterforHealthPolicy,DukeUniversityJingyuanQianSeniorResearchAssistant,Duke-RobertJ.Margolis,MD,CenterforHealthPolicy,DukeUniversityMarkB.McClellanDirector,Duke-RobertJ.Margolis,MD,CenterforHealthPolicyandRobertJ.Margolis,MDProfessorofBusiness,MedicineandHealthPolicy,DukeUniversity

Copyright2017,DukeUniversity

AdvisoryGroupAlanBalchChiefExecutiveOfficer,PatientAdvocateFoundationThomasBarkerPartnerandCo-Chair,HealthcarePractice,FoleyHoagAmyBassanoActingDeputyAdministratorforInnovationandQuality&ActingDirectoroftheCenterforMedicareandMedicaidInnovation,CentersforMedicareandMedicaidServicesJonathanBlumExecutiveVicePresident,MedicalAffairs,CareFirstBlueCrossBlueShieldMarcBoutinChiefExecutiveOfficer,NationalHealthCouncilPerryBridgerVicePresident,GlobalValue,PayerAccessandPublicPolicy,EdwardsLifesciencesAlexandraClydeCorporateVicePresidentofGlobalHealthPolicy,ReimbursementandHealthEconomics,MedtronicGavinCorcoranSeniorVicePresidentandChiefMedicalOfficer,AllerganPatrickCourneyaExecutiveVicePresidentandChiefMedicalOfficer,Hospitals,QualityandCareDeliveryExcellence,KaiserPermanente

MichaelGoettlerGlobalPresident,RareDiseaseGroup,PfizerInnovativeHealth,PfizerInc.DarinGordonPresidentandCEO,Gordon&Associates,LLCTimHuntSeniorVicePresident,CorporateAffairs,EditasMedicineLeighAnneLeasVicePresidentandUSCountryHead,HealthPolicy,NovartisNickLeschlyChiefExecutiveOfficer,bluebirdbioJeffMarrazzoCo-FounderandChiefExecutiveOfficer,SparkTherapeuticsSteveMillerSeniorVicePresident&ChiefMedicalOfficer,ExpressScriptsJoshuaOfmanSeniorVicePresident,GlobalValue,Access&Policy,AmgenParasharPatelVicePresident,GlobalHealthPolicy,BostonScientificJonathanPerlinPresidentofClinicalServicesandChiefMedicalOfficer,HospitalCorporationofAmerica

DanaGelbSafranChiefPerformanceMeasurementandImprovementOfficer/SeniorVicePresident,EnterpriseAnalytics,BlueCrossBlueShieldofMassachusettsCraigSamittExecutiveVicePresidentandChiefClinicalOfficer,AnthemLewisSandyExecutiveVicePresident,ClinicalAdvancement,UnitedHealthGroupMichaelShermanChiefMedicalOfficerandSeniorVicePresident,HarvardPilgrimHealthCareSuryaSinghCorporateVicePresidentandChiefMedicalOfficer,SpecialtyClientSolutions,CVSHealthSusanWincklerChiefRiskManagementOfficer,LeavittPartners/President,LeavittPartnersConsultingLindaWiantChief,MedicalAssistancePlanDivision,GeorgiaDepartmentofCommunityHealth

Contents

AbouttheDuke-MargolisCenterforHealthPolicy...............................................................1

ExecutiveSummary.................................................................................................................6

Introduction............................................................................................................................9

ClarifyingtheRegulatoryLandscape.....................................................................................12

FDARegulationofManufacturerCommunicationsandImplicationsonValue-BasedPaymentArrangements.....................................................................12

BackgroundonFDA’sRestrictionsonOff-LabelPromotionandHealthcareEconomicInformation.......................................................................12

The21stCenturyCuresActandRecentDevelopments................................14

FDA’sGuidanceonHCEIDissemination.......................................................15

Anti-kickbackStatute...............................................................................................17

BackgroundontheAKS................................................................................18

HowtheAKSImpedesVBPArrangements...................................................18

IdentifyingExistingFlexibilitywithintheAKSforVBPArrangements........20

MedicaidBestPriceRequirement............................................................................23

BackgroundontheMBPRequirement.........................................................23

HowtheMBPRequirementImpedesVBPArrangements...........................24

IdentifyingExistingFlexibilitywithintheMBPRequirementforVBPArrangements...................................................................................24

RegulatoryandLegislativeSolutions.....................................................................................27

RegulatoryProposals................................................................................................27

FDARegulationofOff-LabelCommunication..............................................27

TheAnti-KickbackStatute............................................................................29

MedicaidBestPrice.......................................................................................31

LegislativeSolutions.................................................................................................33

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FDARegulationofManufacturerCommunications.....................................33

Anti-KickbackStatute...................................................................................34

MedicaidBestPrice.......................................................................................35

Conclusion.............................................................................................................................35

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ExecutiveSummary

Growingconcernsoverthehighcostofnewandinnovativedrugsanddeviceshaveledtoincreasedinterestindevelopingvalue-basedpayment(VBP)arrangementsforthesemedicalproducts,withthegoalofachievingbetteroutcomesataloweroverallcostthanthecurrentfee-for-service(FFS)system.Thesepaymentreformsaimtoalignpricingand/orpaymentsmoredirectlytoevidenceonoutcomesandcosts.AswithVBPreformsforhealthcareproviders,implementationofVBParrangementsformedicalproductsmightbemeaningfullyviewedonaspectrumrangingfrommodestincrementalFFSpaymentadjustmentsbasedonexpectedvalue,tocontractsthatinvolvesubstantialaccountabilityandrisksharingforhealthoutcomesandtotalcostsforapopulationofpatients.Moreadvancedmodelsrelyonacombinationofqualityofcaremeasures,clinicalorpatient-reportedoutcomes,utilizationoutcomes,andmeasuresofspendingintendedtoreflectvalue.Yet,whileagrowingshareofhealthcarepaymentsareshiftingtovalue-basedapproachesinotherpartsofhealthcare,mostVBParrangementsfordrugs,devices,andothermedicalproductsaremodest,involvinglimitedperformance-basedadjustmentsinconjunctionwithpredominantlyFFSpayments.SomeofthemostnotablehurdlestomoreadvancedVBParrangementsformedicalproductsinvolvecurrentU.S.lawsandregulationsdesignedtoaddressappropriateconcernsaboutoveruse,misuse,andexcessspendingassociatedwithmedicalproductsinFFSpaymentsystems.AswemoveawayfromFFS,theseaspectsofthecurrentU.S.statutoryandregulatorylandscapenotonlycomplicateVBPimplementation,butinsomecasespreventtheiradoption.Majorconcernsinclude:§ Off-labelcommunicationrestrictions:VBPcontractsrequirethebilateralexchangeofa

widerangeofperformancedataamongthemanufacturers,payers,andprovidersinvolvedinthecontracts,ofteninvolvingperformanceresultsandusesnotyetontheproductlabel,orproductsthatareapproachingthemarketbutnotyetwithanapprovedlabel.RecentlegislationandFDAregulatoryactionhasaddressedsomeoftheseissues,particularlyinvolvingeconomicoutcomes.Yet,stakeholdershaveexpressedconcernaboutsharingsuchinformationforVBPcontractsduetoregulatoryuncertaintyaboutmanufacturercommunicationsandactivitiesrelatedtounapprovedusesofapprovedorclearedmedicalproducts,impedingthewidespreadadoptionofmoresophisticatedVBParrangements.

§ Anti-kickbackrules:TheAnti-KickbackStatute(AKS)isintendedtopreventexchangesofvaluebetweenmanufacturersandotherparties,whichespeciallyinFFSarrangementscreaterisksofinappropriatecare.While“safeharbors”havebeendevelopedforsomeactivities,currentrulesdonotconsiderpaymentmodelsformedicalproductsinwhichreimbursementdependsmainlyonmeasuresofvalueandnotonvolumeofsales.ThisenvironmentischallengingfortheimplementationofVBParrangementssincethepotentialforincreasedvalueoftendependsonsomedegreeofcoordinationandsharingofdata,analytics,andothercareimprovementresourcesbetweenthecontractingparties.

§ “BestPrice”andrelatedpricingregulations:Anumberofpricingrulesfordrugs,particularlytheMedicaidDrugRebateProgram’sBestPricecalculation(MBP)requirement,serveanimportantpurposeinachievinglowvolume-basedpaymentsfordrugsinMedicaid.

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However,ascurrentlyformulated,failuretoachievedesiredoutcomesinanadvancedoutcomes-basedcontractcouldtriggerahigherrebateforallMedicaidutilizationofthedrug.

Allofthesebarrierscouldbenefitfromclarificationofcurrentguidance,aswellasfromregulatoryandlegislativereformstofosteramorecertainenvironmentfortheadoptionofpaymentsformedicalproductsthatshiftsubstantiallyawayfromFFS.Theseshiftswouldalignwithmajorhealthcarepaymentreforminitiativesforproviders,andcouldcreatemoreassuranceandsupportforinnovativeproductstodeliverhighervaluetopatients.TheDuke-MargolisCenterforHealthPolicy,workingwithabroad-basedConsortium—composedofpatientadvocates,payers,manufacturers,andproviders,aswellasexpertsonregulatoryaffairs,law,andpolicy—analyzedthelegalbarrierstomeaningfulVBParrangementsinvolvingmedicalproducts,notingsituationswherestakeholdersmaybeabletoutilizetheexistingandemergingregulatoryenvironmenttodevelopandimplementVBParrangements.Basedonouranalysis,werecommendthattheFoodandDrugAdministration,OfficeofInspectorGeneral,CentersforMedicare&MedicaidServices,andCongresstakecertainstepstoadvancelegalcertaintyandincentivizethefurtherdevelopmentandadoptionofmeaningfulVBParrangementsformedicalproducts.Regulatoryinnovationtoaddresstheseobstaclesshouldmatchandsupporttheinnovationsin21stcenturytechnologiesandhealthcareorganizations,byprovidingaclearpathwayforaligningmanufacturersandhealthcareprovidersbehindpaymentapproachesthatdeliverbetteroutcomesandavoidunnecessaryhealthcarecosts.Belowisasummaryofregulatoryandlegislativerecommendations:FDARegulationofManufacturerCommunications§ Expandthescopeandfinalizethehealthcareeconomicinformation(“HCEI”)draftguidance§ ImplementasafeharborforVBParrangements§ PermitdisseminationofHCEIrelatedtoinvestigationalintendeduse§ Leverage21stCenturyCuresauthoritiestofacilitatedevelopmentofVBParrangements

withRWE§ Promulgateregulationsonoff-labelpromotion§ Establishasafeharborforpre-approvalcommunicationofHCEI§ Createregulatorycertaintyforoff-labelinformationtosupportvalue-basedcaremodelsAnti-KickbackStatute§ Reinterpret“volumeorvalueofanyreferrals”inthecontextofVBParrangements§ Reinterpret“FairMarketValue”inthecontextofVBParrangements§ ReviseexistingsafeharborstofacilitateVBParrangements§ EstablishaVBParrangementsafeharbor§ EstablishclearpolicydirectionwithrespecttoVBParrangements

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MedicaidBestPrice§ Reinterpretthebundledsalesprovision§ ClarifythatrebatesbasedonvaluenegotiatedbyMedicaidmanagedcareorganizationsdo

nottriggerMBP§ ModifybasisofmeasurementforMBPinthecontextofVBParrangementsthrough

regulatoryand/orlegislativeactions§ EstablishSection402demonstrationsforVBParrangements§ EstablishsafeharborsforMBP§ ModifyCenterforMedicareandMedicaidInnovation(CMMI)statutoryauthority

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Introduction

BiopharmaceuticalandmedicaldeviceinnovationisrightlyconsideredacriticalpillaroftheUnitedStates(U.S.)healthcaresystem.Rapidinnovationintheseindustriespromisestoproducetransformativetherapiesthatwillchangethelivesofpatientswithdiseasespreviouslyconsideredintractableorinneedofcostlymanagementofsymptomsandcomplications.Simultaneously,however,payersandpatientshavegrownincreasinglycost-conscious.Asaresult,stakeholdersarecallingfornewreimbursementmodelsforbiopharmaceuticalandmedicaldeviceproducts(togetherreferredtoas“medicalproducts”)thathelpbringoverallcostsdownandbetteralignpaymentswiththevaluetheygenerateforpatients.TheAmericanhealthcaresystemtraditionallyoperatesonafee-for-service(FFS)paymentbasis,meaningthattotalpaymentsaregenerallytiedtothevolumeandintensityofservices.Thissystemcanrewardunnecessaryandcostlycare,asrevenueistiedtoprioritizingvolumeandintensityofmedicalservicesratherthaninnovativecaremodelsthatproducebetteroutcomes,lowercosts,andthushighervalue.Further,FFSpaymentsoftenlacksupportforcoordinationofcareacrossapatient’smultipleprovidersandtreatments,leadingtoinefficientandfragmentedcarethatisnotpersonalizedtoindividualpatientneeds.IncontrasttoFFSpayment,“value-basedpayment(VBP)”arrangementsformedicalproductsareintendedtoalignpricingand/orpaymentsmorecloselytovalueacrossapopulation(i.e.,outcomesrelativetocosts).Aswithpaymentreformsforhealthcareproviders,implementationofVBParrangementsformedicalproductsmightbemeaningfullyviewedonaspectrum,beginningwithpaymentsthatremainFFS-basedbutthatareadjustedbasedonevidenceofexpectedvalue,suchaswithindication-basedpricing.Thisspectrumextendstooutcomes-basedcontracts(OBCs)thatlinkpaymentstothatproduct’sactualperformanceorvalueinapatientorapopulation.OBCscanpotentiallyallowstakeholders,includingpayers,manufacturers,providers,andhealthsystems,toaligntheirfinancialinterestsdirectlywiththeperformanceofthemedicalproduct.Thesepaymentscanencouragegreatersharedeffortstoimproveoutcomesforthepatientpopulationtreated,includingsuchstepsasdevelopingbetterevidenceonhowtreatmentsworkandcanbeimprovedinreal-worldsettings,andadvancinginnovativecaremodelsbasedonbetteralignmentofmanufacturersandprovidersaroundhealthoutcomes.WithOBCs,accountabilityforresultsisbasedonclinicalorpatient-reportedoutcomes,utilizationoutcomes,measuresofspending,and/orqualityofcaremeasures.1Thesemeasureswouldinformaresults-orvalue-basedadjustmenttopayments.Althoughtheterminologyassociatedwiththesetypesofagreementscanvary(i.e.“risk-sharingagreements,”“outcomes-basedagreements,”“performance-basedagreements,”“accountablecarepayments,”etc.),

1Garrison,L.P.J.,Carlson,J.J.,Bajaj,P.S.,Towse,A.,Neumann,P.J.,Sullivan,S.D.,Westrich,K.,Dubois,R.W.(January01,2015).Privatesectorrisk-sharingagreementsintheUnitedStates:trends,barriers,andprospects.TheAmericanJournalofManagedCare,21,9,632-40.

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theyallshareacommonfeatureoflinkingpaymentfortherapiesorinterventionstomeasuresofactualresultsorotheroutcomesachievedinapatientpopulation.Thesemodelscanvaryintermsofhowmuchandhowcomprehensivelytheyshiftfromvolume-tovalue-basedpayment.Forexample,morestraightforwardOBCsmightincludemanufacturer“warranties”thatinvolvefullupfrontpaymentwithsomerebatesfortheproducttiedtoeasier-to-collectmeasuressuchasmedicationadherenceorhospitalizationratesinthepopulationreceivingtheproduct.MoreadvancedOBCsmightinvolvelinkingmostorallpaymentstoamorecomprehensivesetofoutcomeandspendingmeasures,includingclinicalmeasuresand/orpatient-reportedoutcomes,aswellasimpactontotalcostofcare.ThemovementofOBCsalongthecontinuumfromsimpletoadvancedrepresentsanincreasingshiftawayfromFFS.Whilemedicalproductpaymentcontractshavebeentypicallynegotiatedbetweenpayersandmedicalproductmanufacturers,thegrowingprominenceofVBPmodelshasledtoincreasinginterestinalignedVBParrangementsinvolvingmanufacturersandproviders.TheselatterVBParrangementspotentiallyallowinvolvedpartiestoaligntheirfinancialinterestsandshareaccountabilityinoverallpatientoutcomes.VBParrangementsthatalignacrossproviders,payers,andmanufacturerscouldproveespeciallyeffectiveifadoptedbyhealthsystemsordifferentprovidersthatarevirtuallyalignedthroughtheirownVBPs,givingthemtheabilitytocoordinatepatientcare.AsexperienceandcapacitiestoimplementsuchVBParrangementsevolves,contractscouldincreasinglyreflectclosealignmentbetweenproviderandmedicalproductpaymentswiththevalueproducedforpatientsandthehealthsystem.ManystakeholdersviewVBParrangementsaspotentiallydrivingmoreefficienthealthcaredelivery,withreductionsinoverallcostswhileimprovingpatientoutcomes.VBParrangementsarestillintheirinfancy.TheirslowdevelopmentandadoptionintheU.S.isattributabletonumerousfactors,includingthelackofconsensusonwhatconstitutes“value,”2agreementonbestmeasures,availabilityandsharingofdata,andotheroperationalchallenges.SomeofthemostnotablehurdlesinvolvecurrentU.S.lawsandregulationsdesignedtoaddressappropriateconcernsaboutoveruse,misuse,andexcessspendingassociatedwithmedicalproductsinFFSpaymentsystems.TheseaspectsofthecurrentU.S.statutoryandregulatorylandscapenotonlycomplicateVBPimplementation,butinsomecasespreventtheiradoption.Inparticular,stakeholdershavefrequentlyidentifiedatleastthreetypesofregulatoryand

2Defining“value”continuestobeaveryhotlydebatedtopicandthediscussionisfarfromconsensus.Someorganizationshaveputforwardmethodologiesfordefiningandmeasuringvalue.MostnotableamongthemistheInstituteforClinicalandEconomicReview(ICER),whichwasreferencedbytheCenterforMedicare&MedicaidServicesinitsnow-defunctPartBDrugPaymentModelProposal.See“MedicareProgram;PartBDrugPaymentModel,”81Fed.Reg.13229,13243(March11,2016).Ideally,thesetypesofanalyseswouldinform“value-basedpayment(VBP)arrangements”,buttheyneednotto.

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statutory`barriers3,4,5asposingsignificantlimitationsontheexpandedadoptionofVBParrangements.Theseare(1)theU.S.FoodandDrugAdministration’s(FDA)regulationofmanufacturerpromotionalcommunications6,7,8,9,10(2)theAnti-KickbackStatute(AKS),11and(3)theMedicaidDrugRebateProgram’sBestPricecalculation(MBP)requirement.12,13,14,15,16,17ThepurposeofthisWhitePaperistodescribethesethreelegalbarrierstomeaningfulVBParrangementsinvolvingmedicalproducts,andtoidentifyspecific,practicalstepstoaddressthem.18ThesehurdlesareincreasinglyrestrictiveaspaymentmodelsmovefurtherfromFFSandtowardarrangementswhererevenuesdependnotonvolumeofsalesbutonmeasuresofvalue.Consequently,existingstatutesandregulationswillneedtobeclarifiedormodifiedtoenablemeaningfulshiftsfromFFStovalue-basedreimbursementformedicalproducts.Intermsofprice-reportingrequirements,whileMBPistheprimaryfocusofourdiscussion,we

342U.S.C.§1396r-8(c)(1)(C).4Ward,A.S.,Linthicum,M.,Drozd,M.,Silverstein,A.R.,&Vandigo,J.(2016,November4).Regulatory,LegalUncertaintiesAreBarriersToValue-BasedAgreementsForDrugs.HealthAffairsBlog.RetrievedApril11,2017,fromhttp://healthaffairs.org/blog/2016/11/04/regulatory-legal-uncertainties-are-barriers-to-value-based-agreements-for-drugs/5BarrierstoValue-BasedContractsforInnovativeMedicines.PhRMAMemberSurveyResults.March2017.6FoodandDrugAdministrationModernizationActof1997§102,42U.S.C.§4332(1997).7FDAFederalRegisterNotice:ManufacturercommunicationsRegardingUnapprovedUsesofApprovedorClearedMedicalProducts,FederalRegister.82(12):6367(January19,2017).8FDAGuidance:UnitedStatesGovernment.U.S.FoodandDrugAdministration.(2017).MedicalProductCommunicationsthatareConsistentwiththeFDA-RequiredLabeling.SilverSpring,Maryland.FDA.9FDAMemorandum:UnitedStatesGovernment.U.S.FoodandDrugAdministration.(2017).PublicHealthInterestsandFirstAmendmentConsiderationsRelationtoManufacturerCommunicationRegardingUnapprovedUsesofApprovedorClearedMedicalProducts.SilverSpring,Maryland.FDA.10RecommendationsincludedinNEHI,PhRMA,andHealthAffairspublications.1142U.S.C.§1320a-7b.1242U.S.C.§1396r-8.13Kelly,C.(November6,2016).USOutcomes-BasedContracts:BigUptickInInterest,ButNotExecution.Availableat:https://invivo.pharmamedtechbi.com/IV004953/US-OutcomesBased-Contracts-Big-Uptick-In-Interest-But-Not-Execution14RewardingResults:MovingForwardonValue-BasedContractingforBiopharmaceuticals.TheNetworkforExcellenceinHealthInnovation.March201715EliLillyandCompanyandAnthem.(January29,2016).PromotingValue-BasedContractingArrangements.Availableat:https://lillypad.lilly.com/WP/wp-content/uploads/LillyAnthemWP2.pdf16MarguliesR.CMSreleasesguidancetostatesandmanufacturersonMedicaidvaluebasedpurchasingarrangements.FoleyHoagLLP.July15th,2016.Accessedat:[http://www.medicaidandthelaw.com/2016/07/15/cms-releases-guidance-to-states-and-manufacturers-on-medicaid-value-based-purchasing-arrangements/]17“StatesandtherisingcostofPharmaceuticals:ACalltoAction.”NationalAcademyforStateHealthPolicy,October2016.18ThispaperfocusesprimarilyonVBParrangementsthattaketheformofOBCs.Weacknowledgethatthereareimportantadvancesoccurringintheuseofindication-specificpaymentmodelsthatseektoalignpaymentwithamedicalproduct’sindication-specificefficacy,asestablishedthroughexistingclinicaltrialdata.AlthoughthesetypesofpaymentmodelsalsoreflectamoveawayfromtraditionalFFSandsharesimilarlegalandregulatoryhurdlestotheirdesignandimplementationasOBCs,theyarebeyondthescopeofthispaper.

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alsobrieflyaddresssimilarissueswithaveragesalesprice(ASP)andaveragemanufacturerprice(AMP).ThisWhitePaperalsonotessituationswherestakeholdersmaybeabletoutilizetheexistingandemergingregulatoryenvironmenttodevelopandimplementVBParrangements.Eveninthesesituations,concernsmayremainaboutthecomplianceriskassociatedwithpursuingsucharrangementswithoutfurtherclarificationsormodificationsintheflexibilityofthecurrentstatutoryandregulatoryenvironmenttosupportVBParrangements.Therefore,weconcludewithproactiveregulatoryandlegislativerecommendationstofosteramorecertainandsupportiveenvironmentforasubstantialshiftfromFFStoVBPsformedicalproducts.ClarifyingtheRegulatoryLandscape

ThediscussionthatfollowsaimstoidentifyhowthethreekeyregulatoryconcernsoperatetoimpedeVBParrangements.ThediscussiondemonstratesthatalthoughthereislimitedflexibilitywithintheexistingregulatoryregimethatcanbeutilizedtodevelopandadoptVBParrangements,regulatoryuncertaintyandcomplianceriskwillcontinuetobeanimportantlimitingfactorformanufacturersandotherpartiesinterestedinpursuingVBParrangements.FDARegulationofManufacturerCommunicationsandImplicationsonValue-BasedPaymentArrangementsAfundamentalprincipleunderlyingthesuccessofanyVBParrangementistheabilityofthecontractingpartiestocommunicate,tosharereliable,ifimperfect,evidence.Suchevidenceisusedtoassess“value”andinformsnegotiationsthatsetparameters,whichmightincludedataoncostsandcomparativeeffectiveness,productutilizationimpactreports,clinicaloutcomes,andotherqualityandeconomicmetrics.Thistypeofinformationincludesreal-worldevidence(RWE)developedfollowingaproduct’sapproval,andmaybederivedfromclinicalpracticeandothersourcesofreal-worlddata(RWD).Duetotheimportanceofthisbilateralexchangeofdata,FDA’sregulatoryauthorityovermedicalproductlabelingandregulationofmanufacturerpromotionalcommunicationshasimportantimplicationsforthesuccessfuldevelopmentandexecutionofVBParrangements.Forthisreason,stakeholdershaveexpressedconcernthatregulatoryuncertaintysurroundingtheFDA’srulesandpoliciesonmanufacturercommunicationsandactivitiesrelatedtounapprovedusesofapprovedorclearedmedicalproducts(commonlyknownas“offlabel”uses)impedesthewidespreadadoptionofVBParrangements.BackgroundonFDA’sRestrictionsonOff-LabelPromotionandHealthcareEconomicInformationUnderFDA’sregulationofmanufacturercommunications,amanufacturer’sabilitytorelayinformationnotcontainedintheFDA-approvedlabelingisrestrictedandsubjecttoanarrayofrulesandguidancedocuments.InformationfoundintheFDA-approvedlabelingisgenerallyderivedfromadequateandwell-controlledrandomizedclinicaltrialsandother“substantial

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evidence”reviewedatthetimeofproductapproval.Thisinformationisoftenlimitedtoclinicalmeasures,suchaslabvaluesorothermarkersofclinicalbenefit,whichmaybelessmeaningfulforpurposesofstructuringVBParrangements,19andcontainlessinformationoneconomicoutcomes,healthoutcomesinsubpopulationsrelevanttoaparticularpayer,orcomparisonstoothertreatmentapproachesinpractice.Historically,therehasbeenuncertaintyaboutwhethersharingdataonreal-worldoutcomesthataremeaningfulfordefiningvaluebutareabsentinthelabeling,suchasreducedhospitalizationrates,couldbeperceivedaspromotinganunapproveduseofaproduct.Suchcommunications,ifviewedaspromotionalinnature,couldsubjectthemanufacturertoFDAenforcementactionandotherliabilityrisk.20Recognizingtheimportanceofthisinformationtothepayercommunity,in1997Congresscreatedasafe-harbortopermitmanufacturerstoproactivelycommunicate“healthcareeconomicinformation”(“HCEI”)to“aformularycommittee,orothersimilarentity,”providedtheHCEIisbasedon“competentandreliablescientificevidence”(“CARSE”)and“directlyrelates”toanapprovedindication.21WhileCongressintendedtoallowmanufacturerstosharecost-effectivenessinformationandother“economicconsequence”information,22confusionamongstakeholdersabouthowtoutilizethesafeharborandalackofclearguidancefromFDAonwhattypeofdatametthedefinitionofHCEIandtheappropriatescopeoftheaudiencetoreceiveHCEIhashamperedutilizationofthesafe-harborfornearlytwentyyearsfollowingitscreation.23InadditiontoconfusionamongstakeholdersoverwhattypeofinformationqualifiesasHCEIandhowthesafeharborshouldbeutilized,aseriesofFirstAmendmentcourtdecisionscastadditionaluncertaintyonthelegalvalidityofFDA’srulesandpoliciesgoverningmanufacturerofflabelcommunications.FollowingthesecasesinwhichthecourtsruledagainstFDA,24somestakeholdersbelieveFDA’sauthoritytoregulateoff-labelcommunicationthatistruthfulandnon-misleadingislimitedbytheFirstAmendment.

19Seee.g.,Ward,A.S.,Linthicum,M.,Drozd,M.,Silverstein,A.R.,&Vandigo,J.(2016,November4).Regulatory,LegalUncertaintiesAreBarriersToValue-BasedAgreementsForDrugs.HealthAffairsBlog.Availableathttp://healthaffairs.org/blog/2016/11/04/regulatory-legal-uncertainties-are-barriers-to-value-based-agreements-for-drugs/.NotethatFDAlabelingisnotalwayslimitedtointermediateoutcomesandcouldcontainotherinformationsuchasefficacyendpointsandoutcomesthatcouldbeclinicallyrelevantand“real-world”applicable.20Forexample,stakeholdershavealsovoicedconcernsthatoff-labelcommunicationsissuemayalsoimplicateFalseClaimsActliability.21Section114oftheFoodandDrugAdministrationModernizationAct(FDAMA)of1997.22UnderSection114ofFDAMA,HCEIwasdefinedas“anyanalysisthatidentifies,measures,orcomparestheeconomicconsequences,includingthecostsoftherepresentedhealthoutcomes,oftheuseofadrugtotheuseofanotherdrug,toanotherhealthcareintervention,ortonointervention.''23Seee.g.,AMCPPartnershipForum:FDAMASection114—ImprovingtheExchangeofHealthCareEconomicData.24SeeUnitedStatesv.Caronia,703F.3d149(2dCir.2012)(Courtexplicitlyrejectedthataccuratespeechaboutoff-labelinformationcouldbebasisforcriminalprosecution);AmarinPharma,Inc.v.FDA,119F.Supp.3d196(S.D.N.Y.2015)(MilestonesettlementbetweenFDAandAmarinpermittingoff-labelpromotionofanunapproveduse);UnitedStatesv.VascularSolutions,Inc.,No.14-0926,ECFNo.286(verdictform)(W.D.Tex.Feb.26,2016)(AcquittalofallcriminalchargesbroughtagainstamedicaldevicemanufacturerandCEObasedontheallegedoff-labelpromotionofamedicaldevice).

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Inthiscontext,FDAheldatwo-daypublicmeetinginNovemberof2016andrequestedfeedbackaspartofareexaminationofitspromotionalrulesandpoliciesrelatingtofirmcommunicationsregardingoff-labeluses.25Publiccommentandtestimonyfrommanypayersandpublichealthdecisionmakersadvocatedforpoliciesthatpermitcommunicationofbroaderandnon-misleadinginformationaboutaproductpre-approvaltofacilitatebudgetplanningandtosupportfurtheradoptionofVBParrangements.26The21stCenturyCuresActandRecentDevelopmentsAsFDAcontinuestoreviewitsrulesandpoliciesrelatedtooff-labelcommunications,recentdevelopmentshaveclarifiedhowmanufacturersmaycommunicateHCEIinformationaboutanapproveddrugtopayers,whichmaysupportcommunicationsrelatedtoVBParrangements.InDecember2016,Congresspassedthe21stCenturyCuresAct(“CuresAct”),27whichmodifiedtheFoodandDrugAdministrationModernizationAct(“FDAMA”)Section114definitionofHCEItoincludecertainclinicaloutcomesdataandanalyses;expandedthescopeofaudiencewithwhomHCEImaybeshared;andchangedtherequirementthatHCEIhadto“directlyrelate”toanapprovedindicationtoanewstandardthatHCEImust“relateto”anapprovedindication.ThelawmaintainedthestandardthatqualifyingHCEImustbebasedonCARSE.Manufacturersmaynowrelyonthissafeharbortoproactivelyshareinformationwithpayers,includinginVBParrangementnegotiations,thatwaspreviouslybelievedtobeoutsidethescopeofFDAMA’sdefinitionofHCEI,suchasclinicaldataandassumptionsunderlyingtheHCEIanalysis.FollowingthepassageoftheCuresAct,therehavebeenotherimportantdevelopmentsinthisregulatoryarea.Forinstance,inJanuary2017,FDAreleasedtwodraftguidancedocuments28andamemorandumonFirstAmendmentconsiderationsto“clarifytheagency’sthinking”onmanufacturercommunicationsthatare“consistentwith”theproduct’slabel;toaddressHCEIdisseminationafterpassageoftheCuresAct;andtosolicitfurtherpubliccommentonFDA’srulesandpoliciesonmanufactureroff-labelcommunications.StakeholdersarewaitingforFDAtofinalizeitsreviewofitspolicyandguidancedocuments,asthescopeandcontentofthefinalHCEIguidancedocumentwillinfluencetheunderlyinginformationthatcanbeusedasabasisfortheVBPcontracts. 2581Fed.Reg.60299(Sept.1,2016).26SeegenerallyU.S.FoodandDrugAdministration,ManufacturerCommunicationsRegardingUnapprovedUsesofApprovedorClearedMedicalProductsPart15PublicHearing,November9-10,2016,Transcripts,availableathttps://www.fda.gov/downloads/NewsEvents/MeetingsConferencesWorkshops/UCM532489.pdfandhttps://www.fda.gov/downloads/NewsEvents/MeetingsConferencesWorkshops/UCM532491.pdf;seealsoManufacturerCommunicationsRegardingUnapprovedUsesofApprovedorClearedMedicalProducts,DocketID:FDA-2016-N-1149,availableathttps://www.regulations.gov/docket?D=FDA-2016-N-1149.27Pub.L.114-255.28SeeDraftGuidanceonManufacturerCommunicationsThatAreConsistentWithTheFDA-RequiredLabeling–Q&A(January2017);DraftGuidanceonDrugandDeviceManufacturerCommunicationsWithPayors,FormularyCommittees,andSimilarEntities–Q&A(January2017)(hereinafter“draftpayorguidance”).

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FDA’sGuidanceonHCEIDisseminationInthedraftpayerguidance,FDAdefinesthescopeofdatameetingtheHCEIdefinitionundertheCuresAct29andstates“HCEIpertainstotheeconomicconsequencesrelatedtotheclinicaloutcomesoftreatingadisease(orspecificaspectofadisease)orofpreventingordiagnosingadisease[,]”whichincludesboththecost-benefitanalysisto“alternativeoptions(includingtheuseofanotherdrug)ortonointervention.”30FDAnotesthatthisinformation“canbepresentedinavarietyofwaysthatcaninclude,butarenotlimitedto,anevidencedossier,areprintofapublicationfromapeer-reviewedjournal,asoftwarepackagecomprisingamodelwithusermanual,orabudget-impactmodel.”31Thisincludesinformationsuchasdifferencesindosingschedulesofanapproveddosageform,burdenofillnessfactors,practice-settingchanges,anddurationoftreatment.Underthedraftguidance,allareprovidedasexamplesofHCEI“relatedto”theapprovedindication.AnexampleprovidedbyFDAthatwouldnotbeconsideredsufficientlyrelatedtotheapprovedindicationisan“[a]neconomicanalysisofdiseasecoursemodificationrelatedtouseofadrugthatisapprovedonlytotreatthesymptomsofthedisease.”32ItisnotablethatthedraftguidancefailstoaddresscommunicationofHCEIregardingcurrentlyunapprovedusesofapproveddrugs,limitingdiscussiontoapprovedindicationsonly.ThishasimplicationsforvariousVBPdesigns,aseconomicresearchaboutdiseasecostsandoutcomesoftengoesbeyondthescopeofapprovedindications.33Forexample,considertheuseofRWE,suchasobservationalretrospectivestudiesorclaimsdatathatprovidesinformationaboutoutcomesinvolvingadrugprescribed“off-label”foranewpopulation.UnderFDA’sdraftguidance,itisunclearifthistypeofcommunicationwouldfalloutsidethescopeofpermissibleHCEI.34Iffinalizedwithoutchanges,thisambiguitywouldhaveimplicationsforVBP 29HCEImeans“anyanalysis(includingtheclinicaldata,inputs,clinicalorotherassumptions,methods,results,andothercomponentsunderlyingorcomprisingtheanalysis)thatidentifies,measures,ordescribestheeconomicconsequences,whichmaybebasedontheseparateoraggregatedclinicalconsequencesoftherepresentedhealthoutcomes,oftheuseofadrug.Suchanalysismaybecomparativetotheuseofanotherdrug,toanotherhealthcareintervention,ortonointervention.....Suchtermdoesnotincludeanyanalysisthatrelatesonlytoanindicationthatisnotapprovedundersection505orundersection351(a)ofthePublicHealthServiceActforsuchdrug.”SeeSection502(a)oftheFederalFood,Drug,andCosmeticAct.(emphasisadded).NotethatwhilethedefinitionofHCEIexplicitlyappliestodrugs,manystakeholdersarguethatthesameprincipalsandpoliciesapplywithrespecttomedicaldevicesandHCEIcommunications.Forexample,thedraftguidanceincludesexamplesandreferencesthatarespecificallyrelevanttothemedicaldeviceindustry.Asaresult,stakeholdercommentstothedraftpayorguidance“encourageFDAtoexplicitlydiscusstherelatedscopeoftheGuidancespecificallyformedicaldevices.”Seee.g.,TheAdvancedMedicalTechnologyAssociation,CommentSubmission,DocketNo.FDA-2016-N-1307,availableatfile://wasfhprof01/home/ykalinina/Downloads/Comment_from_Advanced_Medical_Technology_Association_AdvaMed%20(8).pdf30HCEIdraftguidanceat3(emphasisadded).31Id.at4.32Draftpayorguidanceat8.(emphasisadded).33SeeSection502(a)(“...Suchtermdoesnotincludeanyanalysisthatrelatesonlytoanindicationthatisnotapprovedundersection505orundersection351(a)ofthePublicHealthServiceActforsuchdrug.”).34InthedraftpayerguidanceFDAnotesthat“HCEIanalysesderivedfromstudiesinpatientpopulationsthatarenotwithintheindicatedpatientpopulationarenotrelatedtotheapprovedindicationofthedrug.Forexample,an

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arrangementssuchasthosethatwishtomeasureperformanceontheactualuseoftheproduct,whichcouldraisedifficultriskdecisionsforestablishingbaselinepaymentsandothermetrics.Further,structuringindication-basedpricingforproductsthathavenumerousoff-labeluseswouldlikelyfacechallengesunderFDA’sdraftguidancethatcoulddiscouragetheirimplementation.35FDAfurtherclarifiesthe“appropriatescopeoftheaudience”forHCEIcommunicationsandstatesthatpayers,formularycommittees,druginformationcenters,technologyassessmentpanels,pharmacybenefitsmanagers,and“othermulti-disciplinaryentitiesthatreviewscientificandtechnologyassessmentstomakedrugselection,formularymanagement,and/orcoverageandreimbursementdecisionsonapopulationbasisforhealthcareorganizations”mayreceiveHCEI.36However,thedraftguidancestatesthattheguidancewouldnotapplytodisseminationofHCEItootheraudiences,suchas“healthcareproviderswhoaremakingindividualpatientprescribingdecisions.”37WhileitisgenerallyunderstoodthathealthcareprovidersshouldnotbeprecludedfromreceivingHCEIaslongastheCuresstatutorycriteriaismetandtheproviderisreceivingtheinformationaspartoftheirroleinanappropriateentityreceivingtheHCEI38thedraftguidancedoesnotexplicitlydiscusssharingHCEIwithhealthcareprovidersorotherpartiesengagedinVBPcontractingactivitiesthatinvolveamanufacturer’sproduct.Instead,thedraftguidanceexpresslystatesthatFDA“doesnotregulatethetermsofcontractsbetweenfirmsandpayors,”39eventhoughsuchlimitsonHCEIexchangecouldhinderemergingVBParrangements.WithrespecttoimplementationofthisguidanceforHCEIdissemination,FDAnotesthatifamanufacturerdisseminatesHCEItoonlyappropriateaudiences,andtheHCEIisrelatedtoanFDAapprovedindicationandonethatisbasedonCARSE,FDAwillnotconsiderthiscommunicationasfalseormisleadingoff-labelpromotionorevidenceofpromotinganewintendedusefortheproduct.FDAnotesthatitwillfindthatanindicationisbasedonCARSE

analysisregardingthetreatmentofcysticfibrosis(CF)inpatientswithanymutationintheCFgenewouldnotbeconsideredtorelatetotheapprovedindicationforadrugapprovedtotreatonlyonespecificCFgenemutation.”Seepayerdraftguidanceat8.35Seee.g.,InstituteforClinicalandEconomicReview(ICER),Indication-SpecificPricingofPharmaceuticalsintheUnitedStatesHealthCareSystem,AReportfromthe2015ICERMembershipPolicySummit(March2016)(hereinafterIndicationPricingReport)(“ManufacturerscanonlynegotiatereimbursementcontractsforFDAapprovedindications.Drugsthathavesignificantoff-labeluses,includingonesthatmaybesupportedbyresearch,guidelinesandcompendia,areunlikelytobesuitablecandidatesforindication-specificpricingsinceadecisionmustbemaderegardingwhichpricewillbeusedforoff-labeluses,andmanufacturerscannotenterintocontractnegotiationsthatinanywaygivetheperceptionofpromotingoff-labeluse.Indication-specificpricingdiscussionsshouldthereforefocusondrugsthathavealowriskforoff-labelusebeyondexistingindications.”).NotetheIndicationPricingReportofferspotentialsolutionstothisobstacle,noting“payersandmanufacturerscanaddresstheseconcernsbyselectingdrugsforISPthathaveminimaloff-labeluse,byapplyingindication-specificpriceadjustmentsonlytolabeledindications,andbyusingaweightedaverageapproachtoISP.”Idat17.36SeeDraftpayerguidanceat4.37Id.38Id.39Id.at15.

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only“iftheHCEIhasbeendevelopedusinggenerally-acceptedscientificstandards,appropriatefortheinformationbeingconveyed,thatyieldaccurateandreliableresults.”40Further,IfHCEIincludesmaterialdifferencesfromtheFDA-approvedlabeling,itmustpresent“aconspicuousandprominentstatementdescribinganymaterialdifferencesbetweenthehealthcareeconomicinformationandthelabelingapprovedforthedrug.”41Finally,torespondtostakeholders’concernsregardingpre-approvalcommunicationsandneedsforbudgetandformularymanagement,FDA’sdraftguidancealsopermitscommunicating“unbiased,factual,accurate,andnon-misleading”dataaboutaninvestigationaldruganddeviceproduct,subjecttoconditionslaidoutinthedraftguidance.42Thissafeharborwouldapplytocommunicationsinvolvingthedrugclassordevicedesign,informationontheindicationsought,informationfromclinicalstudiesaboutendpoints,factualclinicaltrialresults,anticipatedtimelineforFDAapproval,productpricinginformation,marketingstrategies,andpatientsupportprograms.43However,manystakeholdershaveraisedquestionsabouttheextentandtypeofinformationthismightentailandhaverequestedadditionalclarityfromFDA.44ThedraftguidanceisawidelywelcomedclarificationofwhatconstitutesappropriateproactivecommunicationofHCEIwithpayersthathelpsmitigatesomeofthehistoricchallengesassociatedwithnavigatingFDA’srulesandpoliciesconcerningmanufacturercommunicationswithpayers.However,thedraftguidancefailstoaddresspre-approvaldiscussionsofunapprovedindicationsofamarketedproduct,leavescertainambiguityaboutthetypesofothercommunicationsthatmaybeappropriateforVBParrangementnegotiationsaspartofsettingcontractualterms,andleavesopenquestionsabouttheextentandsubstanceofinformationthatmaybesharedaboutaninvestigationalproductpriortoitsapproval.Therefore,ifthedraftguidanceisadoptedwithoutrevisions,itwouldfailtoaddresssignificantcurrentregulatoryuncertaintyaroundVBParrangements.Anti-kickbackStatuteFederalfraudandabuselawconsistsofseveraldistinctbutinterrelatedsourcesoflaw,includingtheFalseClaimsAct,thePhysicianSelf-ReferralLaw,theExclusionStatute,theCivilMonetaryPenaltiesLaw,andtheAnti-KickbackStatute(AKS).DependingonthetypeofVBParrangementinvolved,someoftheselawsmaybemorerelevantthanothers.However,compliancewiththeAKSraisessubstantialconcernsforVBPcontractsgiventhelaw’sbroadreach.45

40Id.at9.41Id.at5.42SeegenerallyHECIdraftguidanceat15-18.43Id.44SeeU.S.FoodandDrugAdministration,PublicDocketID:FDA-2016-D-1307.45Thisisparticularlytruepost-ACA.TheACAintroducedlanguageat42U.S.C.§1320a-7b(g)whichprovidesthatanAKSviolationautomaticallyestablishesaFalseClaimsActviolationaswell.

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BackgroundontheAKSTheAKSprohibitsanyonefromknowinglyandwillfullyoffering,making,soliciting,orreceivinganypaymentinreturnfor(1)referringanindividualtoanotherpersonorentityforthefurnishingofanyitemorservicereimbursedbyMedicare,Medicaidorsomeotherfederalhealthcareprogram,or(2)recommendingorarrangingfortheorderingofanyservicereimbursedbyMedicare,Medicaid,orsomeotherfederalhealthcareprogram.46AviolationoftheAKSispunishableuptofiveyearsimprisonmentand/ora$25,000fine.47Further,aviolationoftheAKSexcludestheinvolvedpartiesfromparticipationinallfederalhealthcareprograms.48Whilerecognizingitsimportanceinpreventingimproperincentivesforprescribingandtreatment,CongresshasacknowledgedtheneedtolimitthebreadthoftheAKSnumeroustimes.In1987,CongressdirectedtheSecretaryofHealthandHumanServices(HHS)tocreatesafeharbors.49TheOfficeofInspectorGeneral(OIG)hasestablishednumeroussafeharborsovertheyears,buttheyaretypicallydraftednarrowlyandcontainhighlytechnicalrequirements.In1996,CongressacknowledgedthatthesafeharborsmaynotoffersufficientlegalcertaintytostakeholdersanditfurtherauthorizedtheOIGtoissue“AdvisoryOpinions”(AOs)topartiesconcernedthatagivenarrangementorconductwouldviolatetheanti-kickbackprohibitions.50AdvisoryopinionsarebindingonlyonHHSandthepartyrequestingtheopinion.HowtheAKSImpedesVBPArrangementsBecausetheAKSwaspromulgatedpriortotheriseofVBParrangements,itssafeharborsdonotgenerallycontemplatearrangementsthatshiftawayfromvolume-basedpaymenttopaymentmodelsinwhichreimbursementdependsonmeasuresofvalue.ThisischallengingfortheimplementationofVBParrangementssincetheirpotentialforincreasedvalueoftendependsonsomedegreeofcoordinationandsharingofresourcesbetweenthecontractingparties.Reflectingthis,theCenterforMedicare&MedicaidServices(CMS)andtheOIGjointlyissuedbroadfraudandabusewaiversfortheviableoperationoftheMedicareShareSavingsProgram(MSSP)anditsprincipalcost-savingmechanismknownasanAccountableCareOrganization(ACO).51Outsidethecontextofprovidersincertainalternativepaymentmodels,however,stakeholdersthatdesiretoenterintoVBParrangementsremainsubjecttotheAKS’prohibitions.ManyarguethatotherexistingsafeharborsofferinadequateassurancesthatVBParrangementswillnotbepenalizedundertheAKS.Forillustrativepurposes,thisWhitePaperfocusesonhighlightingthelimitationsofthewarrantysafeharbor,theelectronichealthrecords(EHR)safeharbor,andthe

4642U.S.C.§1320a-7b.4742U.S.C.§1320a-7b(1)(B).4842U.S.C.§1320a-7.4942U.S.C.§1320a-7B(b)(3)(E).5042U.S.C.§1320a-7d(b).51“MedicareProgram;FinalWaiversinConnectionWiththeSharedSavingsProgram,”80Fed.Reg.66726(Oct.29,2015).

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discountsafeharbor.AlthoughthesesafeharborslimitVBParrangementsinspecificways,weemphasizethatthenatureoftheselimitations(i.e.limitationsdesignedtodiscouragecoordinationandcollaboration)generallyapplytoalloftheothersafeharborsaswell.Toillustratetheinadequacyofthewarrantysafeharbor,consideraVBParrangementbetweenadevicemanufacturerandaproviderwhereinthemanufacturerwouldagreetoreimbursetheprovider’scostsassociatedwithhospitalization(orothermedicalservices)resultingfromadefectivedeviceoradevicethatfailstoproduceagreed-uponoutcomes.ThisarrangementimplicatestheAKSbecauseOIGconsidersthereimbursementofpotentialancillarycoststobe“remuneration”thatcaninfluenceproviderstopurchasethedevice.Importantly,itwouldnotmeetthetechnicalrequirementsofthewarrantysafeharborbecausethesafeharborprotectiondoesnotextendtocostsbeyondthoseassociatedwiththereplacementofthedefectivedeviceitself,muchlesstoancillarycostsofaproduct’sfailuretomeetagreed-uponhealthoutcomes.52ThislimitationiscriticalbecauseVBParrangementsformedicaldevicesanddrugsoftenincludeassurancesthatthemanufacturerwillshareinaccountabilityforanyancillaryadditionalcostsassociatedwithunintendedconsequencesorsub-parperformance.Tofitunderthewarrantysafeharbor,however,aguaranteewouldneedtobelimitedtothecostofthedeviceitselfandnotincludeanyancillarycostsotherwisebornebytheproviderorapayer.Theguaranteecouldalsonotbeofferedintheeventofsub-optimalperformance.TheeffectthattheselimitationshaveonVBParrangementsshouldbeclear:medicalproductmanufacturersseekingtoguaranteeenhancedvaluetoprovidersbybearingfinancialriskexposesbothpartiestoAKSliability.AnotherexampleisinthecontextoftheEHRsafeharbor.ConsideraVBParrangementbetweenadrugmanufacturerandproviderwhereinthedrugmanufacturerwouldprovideEHRsoftwareandrelatedanalyticsupporttoassistincaremanagementortrackingofrelevantclinicaloutcomedatarelatingtothemanufacturer’sdrug.SuchtechnologymaybevitaltotheproperfunctioningofaVBParrangement,sinceitresolvesoperationalchallengesrelatedtotrackingandanalyzingdata.Yet,itcouldalsopotentiallyviolatetheAKSbecauseOIGwouldconsiderthesoftwareandanalyticsupporttobe“remuneration”thatcouldinducetheprovidertopurchasethemanufacturer’sdrug.53ThisVBParrangementwouldlikelynotsatisfytheEHRsafeharbor’srequirementthatthereceiptofthetechnologynotbeconditionedondoingbusinesswiththemanufacturer.54Moreover,thistypeofVBParrangementcouldinvolverestrictionsontheEHRsystem’sinteroperability,whichmayviolatetheEHRsafeharbor’srequirementofinteroperability.55Together,thesesafeharborlimitationsrestrictthecreation

5242C.F.R.§1001.952(g)(4)(“[R]emunerationtoanyindividualorentity…[islimited]tothecostoftheitemitself.”)53InAO12-19,theOIGfoundaspecificproposedarrangement,whereinsoftwarewasprovidedatmorethannominalcostandwasnotinteroperable,wouldgenerateprohibitedremunerationundertheAKSandthattheOIGcouldimposeadministrativesanctions.SeeOIGAdvisoryOpinion12-19(Dec.2012),availableathttps://oig.hhs.gov/fraud/docs/advisoryopinions/2012/AdvOpn12-19.pdf.5442C.F.R.§1001.952(y)(4).5542C.F.R.§1001.952(y)(3).

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ofVBParrangementsthatoperationallyfacilitatedatacollectionandanalysisrelatingtoaparticulartherapyortechnology.Finally,certainaspectsofthediscountsafeharboralsolimittheadoptionofVBParrangements.Attheoutset,discountsmaycomeinmanyforms.Forexample,consideraVBParrangementbetweenadrugmanufacturerandahospitalwhereinthemanufactureragreestoofferadiscountthatwoulddependonthesatisfactionofspecifiedhealthoutcomeswithinafive-yeartimeframe(i.e.relapseofthediseaseinyearthreewouldleadtoa30percentdiscountonthefullpriceoftheproduct).ThistypeofVBParrangementcouldimplicatetheAKSbecauseOIGcouldconsiderthepromiseofadiscountbasedontheoccurrenceofcertainoutcomestobe“remuneration”thatcouldinduceaprovider’spurchaseofthedrug.Moreover,thisVBParrangementwouldnotbeprotectedbythediscountsafeharborbecausethesafeharborrequiresthatthehospitalclaimthebenefitofthediscountwithinamaximumoftwoyears,notamaximumoffiveyears.56ThistimehorizonlimitationmaybemorepronouncedinthecaseofVBParrangementsinvolvinggenetherapiesandotherpotentiallycurativetherapies,sincetheVBParrangementwouldlikelyinvolveanextendedtimehorizontoaccountforthepossibilitythatthegeneticdiseasemayreemergeatamuchlaterpointinapatient’slife.Moreover,itisunclearwhetherthediscountsafeharborextendstoarrangementsbetweenmanufacturersandpayers,giventhe“buyer”categoriessetforthintheregulations.57ThesespecificexamplesillustratehowtheAKSgenerallyoperatestolimitVBParrangements.ThisinhibitinginteractionbetweentheAKSandVBParrangementsreflectstheAKS’understandablefocusonmitigatingperverseincentivestoprioritizevolumeovervaluethatmayemergeinaFFSpaymentsystem.ForVBParrangementsthatrepresentasubstantialshiftawayfrompaymentarrangementsthatrewardhighvolumeandtotalspending,thefraudandabuseframeworkoftheAKSneedstoaccommodatethepotentialofVBParrangementstohelpachievetheAKSgoalsofavoidingunnecessaryprogramcostsandimprovingoutcomes.IdentifyingExistingFlexibilitywithintheAKSforVBPArrangementsAlthoughthecurrentAKSframeworkmayimpedethedevelopmentandexpandedadoptionofVBParrangements,someflexibilitymayexisttoenablesucharrangementstoproceedundercertaincircumstances.ThispotentialflexibilityincludestheOIG’s“prudential”approachtoevaluatingcontractualarrangementsthatmayviolatetheAKS.Inaddition,someVBParrangementsarenotimplicatedbytheAKS,becauseitappliesonlyto“federalhealthcareprograms.”PartiesimplicatetheAKSwhenthegoodsorservicesinvolvedinthe“remuneration”arepaid“inwholeorinpartunderaFederalhealthcareprogram….”58Although“federalhealthcareprogram”isdefinedbroadlybythestatute,59thestatutorydefinitiondoesnotextendtothecommercialsector.Consequently,aVBParrangementthatislimitedtoprivateproviders, 5642C.F.R.§1001.952(h)(1)(ii)(B).5742C.F.R.§1001.952(h)(1)-(3).5842U.S.C.§1320a-7b(b).5942U.S.C.§1320a-7b(f).

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manufacturers,andpayerswouldgenerallynotimplicatetheAKS.60StakeholdersshouldrecognizethattheAKSdoesnotgenerallyimpedethedevelopmentandadoptionofVBParrangementsaslongasthecontractingpartiesstructuretheirVBParrangementtoexcludeitemsandservicesreimbursableunderafederalhealthcareprogram.61,62Furthermore,itisanopenquestionwhetherQualifiedHealthPlans(QHPs)thatareeligibleforFederalsubsidiesinstateinsuranceexchangesaresubjecttotheAKS.HHS’latestinterpretationof“federalhealthcareprograms”doesnotincludeQHPspurchasedthroughtheHealthInsuranceMarketplaces(Marketplaces).InaletterdatedOctober30th,2013toRep.JimMcDermott,thenSecretaryKathleenSebeliusassertedthat“TheDepartmentofHealthandHumanServicesdoesnotconsiderQHPs,otherprogramsrelatedtotheFederally-facilitatedMarketplace,andotherprogramsunderTitleIoftheAffordableCareActtobefederalhealthcareprograms.”63Whilesuchalettermaynotofferadequateassurancestosome,othersmayviewthisinterpretationassuggestingthattheMarketplacesmaycontainatleastsomeflexibilitytoenterintoinnovativeVBParrangementswithoutgenerallyimplicatingtheAKS.EvenwithintheconfinesoftheAKS,stakeholdersshouldnotoverlooktheflexibilityexercisedbytheOfficeoftheInspectorGeneral(OIG)initsenforcementdiscretion,asmanifestedinitsAdvisoryOpinions.TherearesomearrangementsthattheOIGsimplydoesnotconsidertoposeasufficientfraudandabuseriskastowarrantenforcementoftheAKS,evenwhenthosearrangementsclearlyimplicatetheAKSandfalloutsideasafeharbor.Forexample,OIGdeterminedthataproposedarrangementfelloutsidetheprotectionofthewarrantysafeharborbecauseitinvolvedthe“bundling”ofproductsandservices,yettheOIGallowedthearrangementbecausethewarrantycovered“asmallservicecomponent[and]items.”64Aspartofitsdetermination,theOIGexplicitlyacknowledgedthattheproposedarrangementcarried

60However,theOIGhasconsideredsomearrangementsthatdonotinvolvefederalhealthcareprogramstobeproblematicpreciselybecausetheyexcludefederalhealthcareprograms.Forexample,thediscountsafeharborexcludesfromthedefinitionof“discount”“areductioninpriceapplicabletoonepayerbutnottoMedicare,Medicaid,orotherfederalhealthcareprograms.”See42C.F.R.§1001.952(h)(3)(iii).In1999,OIGclarifiedthisexclusionasbeingnecessaryto“protectagainstabusivearrangementsinwhichremunerationintheformofdiscountsonitemsorservicesforprivatepaypatientsisofferedtoaprovidertoinducereferralsofFederalhealthcareprogrampatients.”See64Fed.Reg.63,518,63,528(Nov.19,1999).61Itisalsoimportanttoacknowledgetheoperationalcomplexityforproviderstoseparatecareinvolvingprivateandpublicpayersinimplementingnewstepsinhealthcaredelivery.Asaresult,manyprovidersandpayersmaybeunwillingtoinvesttheresourcestoisolatecommercialpatientpopulationsfromMedicare/Medicaidpopulations.PayersmayalsoprefertohavemanagedMedicaidandMedicarepatientsincludedintheircommercialcontractswithmanufacturers.Thistypeofseparationalsodetersthetypeofholisticpracticetransformationthatservesastheunderpinningofmoresophisticatedandcost-savingVBParrangements.62Itisworthnotingthatstateanti-kickbacklawsmayreachstrictlyprivateVBParrangementsevenwhenthefederalAKSdoesnot.63LettertoRep.JimMcDermottbySecretaryKathleenSebelius,October30,2013,http://www.hlregulation.com/files/2013/10/The-Honorable-Jim-McDermott.pdf.64OIGAdvisoryOpinionNo.01-8(July10,2001).

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potentialtobenefitpatientsandfederalhealthcareprogramsthroughitsinnovativedesign.65Inaseparateexample,OIGsimilarlydeterminedthataproposedarrangementnotprotectedbythewarrantysafeharborneverthelesscontainedsufficient“safeguards”toprotectagainsttheriskoffraudandabuse.66,67Astheseexamplessuggest,the“riskassessment”thatOIGappliesintheabsenceofsafeharborprotectionhasbeenadaptedtosomeextenttoinnovationsincontractingandcare,reflectingOIG’sunderstandingofthebroaderhealthcareenvironment.Withincreasingpressurestofindinnovativewaystoprovideaccesstonewtreatmentswhilealsolimitingoverallcosts,itisreasonabletoexpectthatOIG’sriskassessmentscouldbemorereceptivetocontractualsafeguardsthatreduceriskforprogramabuseandhighercostsbypromotingvalue-basedcare.68,69Inshort,theAKS’obstaclestothedevelopmentandadoptionofVBParrangementsforinnovativedrugsandtechnologiesinthecontextofFederalprograms,likeMedicareandMedicaid,weredesignedforahealthcaresystemthatwassusceptibletoexploitationbasedonthevolumeofbillableitemsandservices.Ashealthcarereformincreasinglyshiftstowardsvalue-basedreimbursement,however,thelimitationsoftheAKSforVBParrangementsarebecomingincreasinglyvisible.Yet,theAKSdoesnotprecludeallVBParrangements.InadditiontolimitingcontractsthatmayimplicateAKSissuestotheircommercialpatientpopulation,manufacturersarealsofreetoseekAdvisoryOpinionsandappealtotheOIG’sriskassessmenttestbydemonstratingadequatesafeguardsthatprotecttheVBParrangementagainstfraudandabuse.TheproblemforpolicymakershopingtoencourageVBParrangementsisthattheAdvisoryOpinionprocessisatimeconsuming,limited,andrelativelycostlywaytoanalyzeriskfromacompanyperspective.Intheabsenceoffurtherpolicychanges,theAKSwillcontinuetoserveasaveryrealbarrierfortheadoptionandexpansionofmajorVBParrangements,particularlyinvolvingMedicaidandMedicarepatients. 65Id.66OIGAdvisoryOpinionNo.02-6(May22,2002).67Morerecently,theOIGfoundthataproposedarrangementinvolvingreplacementofadrugthatbecame“spoiled”duetothecustomer’sinabilitytoadministertothepatientforcertainreasonsdidnotfallwithinthewarrantysafeharbor.However,theOIGdeclinedtoimposeadministrativesanctionsbecause,amongotherthings,theproposedarrangement“couldincreasepatientsafetyandqualityofcare.”SeeOIGAdvisoryOpinionNo.17-03,at5(Aug.25,2017).68Forexample,inAdvisoryOpinion01-8,OIGcommentedonvalueandaproposedarrangementthatdidnotsatisfyanAKSsafeharborbystating:“Inmanyrespects,globalpaymentsareintendedtoencourageFacilityoperatorstore-engineerthedeliveryofcaretoreducecostsandincreasequality.Giventheabsenceofanyidentifiableopportunityforabuse,wearereluctanttochillinnovativeandpotentiallybeneficialarrangements.”(emphasisadded)).69However,wearecautiousofoverstatingOIG’sriskassessmentflexibilitysinceitisimpossibletoknowpreciselyhowtheOIGmayperceivetherisksandbenefitsofaspecificarrangement.Additionally,manymanufacturersmayfindpursuinganAdvisoryOpinionunattractiveconsideringthecostsandtheriskofexposureofsensitivebusinessinformation.

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MedicaidBestPriceRequirementTheMedicaidDrugRebateProgram’sBestPricecalculation(MBP)requirementisanotherregulatoryconcernthatstakeholderscommonlyciteasimpedingthedevelopmentandadoptionofinnovativeVBParrangementsinvolvingpharmaceuticalproducts.Unlikeotherpricereportingrequirements,drugmanufacturersareespeciallyconcernedaboutMBPimplicationsofVBParrangementsbecauseasinglecontractcouldaffectpaymentacrosstheentireMedicaidmarket.BackgroundontheMBPRequirementInorderformanufacturerstohaveoutpatientdrugscoveredbytheMedicaidprogram,theymustparticipateintheMedicaidDrugRebateProgram(MDRP).ThemanufacturerdoessobyexecutingtheMedicaiddrugrebateagreement,pursuanttowhichthemanufactureragreestopayarebatetoeachstateMedicaidprogramforitscoveredoutpatientdrugsthataredispensedtoMedicaidbeneficiariesandpaidforbyastateMedicaidprogram.Therebateamountisbasedonpricingdatareportedbythemanufactureronamonthlyandquarterlybasis.ThesedataincludetheAMPand,inthecaseofinnovatorproducts,theMedicaidBestPrice(MBP).Therebateformulaforinnovatordrugsconsistsoftwocomponents,thebasicrebateandtheadditionalrebate(alsoreferredtoastheinflationpenalty).Thebasicrebateforinnovatordrugsisequaltothegreaterof(1)AMPtimes23.1percentand(2)AMPminusbestprice.70MBPisbroadlydefinedtoinclude“thelowestprice”madeavailablebythemanufacturerto“anywholesaler,retailer,provider,healthmaintenanceorganization,nonprofitentity,orgovernmentalentitywithintheUnitedStates,”althoughthereareimportantexclusionsdiscussedinmoredetailbelow.71Initsimplementingregulations,CMSstatedthatbestpricewouldbedetermined“onaunitbasiswithoutregardtopackagesize,specialpackaging,labeling,oridentifiersonthedosageformorproductorpackage.”72Itisworthnotingthatindefining“bestprice,”thestatuteissilentonwhetherbestpricemustbemeasuredona“unitbasis”.73CMSestablishedtheper-unitmeasurementasthestandardforbestprice.UnlikeAMP,MBPisnotanaverage.Itcouldbesetbyasingletransactioninthequarter—namelythetransactionthatresultedinthelowestprice“madeavailable”bythemanufacturer—unlessanexceptionapplies.Ifadrug’sbestpriceislowerthan23.1%belowAMP,thenthebestpricegeneratesahigherbasicrebatewhichappliestoallMedicaidutilizationofthedruginthatquarter.

70Therebatepercentageis17.1percentforcertainclottingfactorsorproductsapprovedexclusivelyforpediatricindications.42U.S.C.§1396r-8(c)(1)(B);42C.F.R.§447.509(a)(1).7142U.S.C.§1396r-8(c)(1)(C)(i).7242C.F.R.447.505(d)(2).7342U.S.C.§1396r-8(b)(3)(A)(i)(II)establishesarequirementformanufacturerstoreporttheir“bestprice.”Butindefiningbestprice,thestatutecrossreferencessubsection(c)(1)(C).Subsection(c)(1)(C)defines“bestprice”asthe“lowestpriceavailablefromthemanufacturerduringtherebateperiod….”Notably,itdoesnotspecifyhow“bestprice”istobemeasured;itissilentonthismatter.

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HowtheMBPRequirementImpedesVBPArrangementsTheMBPrequirementwouldappeartomeanthatiftotaldiscountsonanyunitofthedruginvolvedinaVBParrangementresultinaMBPthatislowerthan23.1percentbelowAMP,themanufacturerwouldberequiredtoextendthatdiscounttoallofMedicaid.Thiswouldalsohavetheancillaryeffectofalsoloweringtheso-called“Section340B”ceilingprice74forthedrug.Becauseofthesesystemicimpactsonamanufacturer’sMedicaidpayments,MBPiswidelyviewedaslimitingthediscountsthatcanbeprovidedinVBParrangements75.Inparticular,MBPcouldbetriggeredbyanadvancedoutcome-basedcontract(OBC),inwhichthemanufacturerwouldgivebackalargeportionofpaymentwhendesiredoutcomesarenotachieved.ToillustratehowMBPmayhinderaVBParrangement,consideranarrangementbetweenadrugmanufacturerandapayerwhereinthemanufactureragreestoatieredrebatestructurethatdependsonthedrugmeetingarangeofagreed-uponclinicaloutcomes.Differentcombinationsofoutcomescouldyielddifferentrebates,basedonnegotiationsbetweenthemanufacturerandprovider/payer.Forexample,afailuretomeetoutcomesX,Y,andZwouldresultinarebateof70percent,whileafailuretomeetYandZwouldresultinarebateof30percent.Butanyrebategreaterthan23.1percentwouldrequirethemanufacturertoofferthesamerebateinallMedicaidcontracts,eventhoughtheVBParrangementwasintendedtobelimitedandofferedinconjunctionwithnewopportunitiesforvaluecreationnotpresentinFFScontracts.AlthoughotherrelatedpricereportingobligationssuchasAMPandAverageSalesPrice(ASP)arenotthefocusofthisWhitePaper,theytoocansimilarlydiscouragethedevelopmentandadoptionofsubstantialVBParrangements.Thisisparticularlytruefororphandrugsbecausethesedrugswillhavefewerpatientsacrosswhichtospreadtheirprice,sothatevenasmallnumberofVBParrangementscouldleadtohighvolatilityinMedicaidreimbursement.Evenformorewidelyprescribeddrugs,uncertaintyaboutimpactsonaveragepricecalculationsmaybeabarriertoadvancedVBPcontractswithsubstantiallinkstooutcomes.IdentifyingExistingFlexibilitywithintheMBPRequirementforVBPArrangementsAlthoughtheMBPrequirementisfar-reaching,therearealsobroadexclusionsfromitspurview.76TwoofthemostprominentexclusionsinvolvethefactthattheMBP,andthe 74The340Bceilingpricereferstothemaximumamountthatamanufacturercanchargeacoveredentityforthepurchaseofa340Bcoveredoutpatientdrug.The340BceilingpriceisstatutorilydefinedastheAverageManufacturerPrice(AMP)reducedbytherebatepercentage,whichiscommonlyreferredtoastheUnitRebateAmount(URA),availableathttps://www.hrsa.gov/opa/updates/2015/may.html.75TaraO’NeilHayes,“CurrentImpedimentstoValue-BasedPricingforPrescriptionDrugs,”AmericanActionForum(June2017),availableathttps://www.americanactionforum.org/wp-content/uploads/2017/06/2017-06-05-Rx-Value-based-pricing-and-policy-impediments-FINAL.pdf;“Value-BasedPricingInPharmaceuticals,”GlobalStrategyGroup–KPMG(2016),availableathttps://assets.kpmg.com/content/dam/kpmg/xx/pdf/2016/10/value-based-pricing-in-pharmaceuticals.pdf.7642C.F.R.447.505(c)(1)(19).

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obligationtoreportAMPandASP,simplydonotapplytomedicaldevicesbecausetheyarenot“coveredoutpatientdrugs.”Moreover,pricesnegotiatedbyprescriptiondrugplansunderMedicarePartDorbyaMedicareAdvantagePrescriptionDrugPlanunderMedicarePartCarealsoexcludedfromthedefinitionof“bestprice.”77Thisexclusionissubstantial.In2013,grossspendingonoutpatientprescriptiondrugsunderPartDamountedto$103.7billion,makingitoneofthelargestmarketsforoutpatientprescriptiondrugs.78Asaresult,manufacturersmayofferrebatesinVBPcontractsinvolvingdrugsdispensedtoPartDenrolleeswithouttriggeringtheMBPrequirement.79Furthermore,theMBPstatuteallowsconsiderableflexibilitytoenterintoVBParrangementswithintheMedicaidprogramitself.Inparticular,the“bestprice”definitionexcludespricesofferedtoanygivenstatethatinclude“supplementalrebates,”asauthorizedbyCMS.80ThismeansthatmanufacturerscanenterintoinnovativeVBParrangementswithspecificstateswithoutunderminingtheirbestprice.Indeed,CMShasexpresslyencouragedstatestoenterintothesetypesofarrangements,andhasspecificallyproposedthatMedicaidstateagenciescouldaligntheirfee-for-servicepreferreddruglistswiththestate’sMedicaidmanagedcareorganizations(MCOs)formulariesforcertainclassesofdrugsinordertocollectsupplementalrebatesonthosedrugsandavoidchangingtheir(thestate’s)approvedstateplan.81RegardlessofthespecificmethodologythatstatesemploytotakeadvantageofthesupplementalrebateexceptiontoMBP,theexceptiondoespresentmanufacturerswithsomeflexibilitytodevelopandtestVBParrangementsinpartnershipwithstateMedicaidagencieswithoutimplicatingMBP.Althoughthe“bestprice”exclusionsmayenablesomeflexibilityundertheMedicareandMedicaidprograms,MBParguablyposesthelargestbarrierinthecommercialmarket.However,asothercommentatorshavenoted,theMBPrequirementismanageabletosomeextentevenincommercialarrangements.82Forexample,insomecircumstances,stakeholderscouldestablishindication-specificpricingforchemically-similardrugswithdifferentNationalDrugCodes(NDCs)thatwouldsetrebateswithinthe23.1percentthresholdfortriggeringMBP.83Thisthresholdprovidessomeleewaytotiethepriceofthedrugtoitsindication-specificefficacyortooutcomes.84However,moreadvancedVBPmodelsthattiealargeshareofreimbursementtooutcomesarelesslikelytofallwithinthethreshold.

7742C.F.R.447.505(c)(6).78MEDPACJune2016Report,Chapter10–PrescriptionDrugs,at166.79Admittedly,though,thisflexibilityappliestonegotiationsbetweenmanufacturersandplans,notproviders.8042C.F.R.447.505(c)(7).81SeeMedicaidDrugRebateProgramNotice–ForStateTechnicalContacts,CMSNo.176(July14,2016).82Sachs,Rachel,Bagley,NicholasandLakdawalla,DariusN.,“InnovativeContractingforPharmaceuticalsandMedicaid'sBest-PriceRule”(April28,2017).JournalofHealthPolitics,PolicyandLaw,Forthcoming;UofMichiganPublicLawResearchPaperNo.549.AvailableatSSRN:https://ssrn.com/abstract=2959939orhttp://dx.doi.org/10.2139/ssrn.2959939.83Seeid.at4(usingtheexamplesofsildenafil,whichreceivedseparateFDA-approvalsanduniqueNDCsforViagraandRevatio).However,thisisnotacommonpractice.84Seeid.

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CommentatorshavealsoproposedworkaroundswithinthecurrentMBPenvironmentforOBCs.RebatesunderOBCsarenottiedtoanyparticularindication,butrathertowhetherspecificpatientsinacoveredpopulationachievecertainclinicaloutcomes.OnepossiblewaytoalignanOBCwithMBPrequirementsistocalculaterelevantperformancemeasuresacrossapatientpopulation,asopposedtocalculatingthemonaper-patientbasis.85Forexample,insteadofofferinga50percentrebateononedrugprescriptionbecauseaparticularpatientfailstomeetthespecifiedclinicaloutcomes,themanufacturercouldofferarebateaccordingtohowmanyaggregatepatientsonthedruginthecoveredpopulationachievethespecifiedclinicaloutcomes.86AlthoughthisworkaroundwouldtriggerMBPifthe“population-basedoutcome”rebateexceeds23.1percentacrosstheaffectedpopulation,thisapproachavoidstriggeringMBPbecauseofasinglepatient’sfailuretoachieveexpectedclinicaloutcomes.InthosecaseswhereasinglecontractdoesnotcoverenoughpatientstomitigatethepotentialforsharpswingsinMBP(forexample,acontractwithaspecificplanorproviderforanorphandiseasemightcoveronlyasmallnumberofpatients),manufacturerscouldarguetoCMSthatanetworkofcontractswithsimilaroridenticaldiscountprovisionsrepresentstherelevantbasisforcalculatingprice.87TheMBPdefinitionalsoexcludes“freegoods”solongasthefreegoodsarenotcontingentuponanypurchaserequirement.88Themanufacturercouldstructurethetransactionsuchthata“sale”doesnotoccuruntil,forexample,thepatientrespondstothetherapy.Ifthepatientfailstorespondtothetherapy,themanufacturerwouldnotdemandpayment—thebuyerwouldreceivethetherapyforfree.Arguably,thedrugprovidedunderthosecircumstanceswouldbea“freegood”notcontingentonanypurchaserequirement,andthereforearguablythetransactionwouldnotberelevantfortheBPcalculation.Thespecifictermsofthearrangementwouldhavetobecarefullydevisedtosupportandstrengthensuchanargument.

85Id.at6.86Thebundledsalesprovisionat42C.F.R.§447.502mayoffersuchflexibilitybyallowingmanufacturerstomodifyhowtheyreportpricing,includingbestprice.Undertheregulations,a“bundledsale”includesdiscountsorotherpriceconcessionsthatareconditionedupona“performancerequirement.”Seeid.Thediscountsinabundledsalemustbe“unbundled”throughtheproportionalallocationofdiscountsacrossthebundledarrangement.ThispotentiallyallowsforamanufacturertoofferlargerebatesforDrugXwhenpatientsfailtomeetaspecifiedoutcome(i.e.theperformancerequirement),butbecausetheselargerrebateswouldbeaveragedwiththesmallerrebatesrepresentinginstanceswherepatientsdidmeetclinicaloutcomes,thereportedpriceishigherthanitwouldotherwisebe,therebypossiblyavoidingtriggeringMBP.However,thereissignificantuncertaintyininterpretingthebundledsalesprovisionthiswaybecauseCMS’interpretationoftheterm“performancerequirement”hasnotincludedperformanceoftheproduct,suchasitssuccessinachievingclinicaloutcomes.Instead,CMShasusedthetermtodescribetheperformanceobligationsofcontractingparties,suchaswherethemanufacturerconditionsarebateforadrugonthe“performancerequirement”ofthepayerplacingthedrugonitsformulary.See“MedicaidProgram;PrescriptionDrugs,”72Fed.Reg.39142,39158(July17,2007).87Ofcourse,theseinnovativecontractualarrangementsassumethattheoperationalframeworkfortheirsuccessfulimplementationexists,whichisnotalwaysthecase.8842C.F.R.§447.505(c)(13).

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ThesecreativeinterpretationsofMBPrequirementsinthesettingofVBPcontractscanhelpadvancetheuseofVBPcontractswherepaymentsdependsubstantiallyonoutcomes.However,intheabsenceofmoreclarityfromCMSabouttheappropriatenessoftheseinterpretations,manufacturerswilllikelycontinuetoperceiveriskthatthegovernmentwouldviewsuchtransactionsdifferently,particularlylimitingtheuseofmoreadvancedVBPcontracts.ThelegaluncertaintysurroundingtheimplicationsofMBPremainsasignificantbarriertothedevelopmentandadoptionofVBParrangements.RegulatoryandLegislativeSolutions

ThelimitedflexibilitiesidentifiedabovemaybeenoughtoenablesomestakeholderstopursuemeaningfulVBParrangements.Butweexpectthatmoststakeholdersaremorerisk-averseandwillavoidwidespreadandadvancedinvestmentsinVBParrangementsthatmovesubstantiallyawayfromvolume-basedcontractsuntiltheyhavemoreclarityabouttheregulatoryimplicationsofthesenewpaymentmodels,particularlyrelatedtothethreekeyregulatoryissueswehaveaddressedinthisWhitePaper.Below,weofferspecificregulatoryandlegislativeproposalsforeachofthethreeissuesthatthatcouldenableamoresubstantialshiftfromFFStovalue-basedpayment.Inallcases,weemphasizetheimportanceofconsideringthespectrumofVBParrangementsinapplyingnewregulatoryapproaches.WhilerelativelylimitedVBPcontractsappeartobefeasiblewithoutsignificantregulatoryandlegislativechanges,widespreadshiftstoadvancedVBParrangementsarelikelytorequirearegulatorystructurethatisbetteraligned,withpaymentarrangementsbasedmainlyonoutcomesandvalueratherthanvolume.RegulatoryProposalsFDARegulationofOff-LabelCommunicationFDA’sproposedpolicyonHCEIdisseminationgreatlyexpandsamanufacturer’sabilitytoshareHCEIaboutanapproveddrugwithpayerswithoutincreasingtheirregulatoryriskforviolatingFDAregulations.Thedraftguidancepermitssomeproactive,pre-approvalcommunicationsaboutaninvestigationaldrugordevice,butdoesnotaddressamanufacturer’sabilitytoshareHCEIaboutunapprovedusesofalreadymarketedproducts,ormanyimportantareasofinformationexchangewithprovidersinVBParrangements.ThefollowingadditionalproposalsforFDAwouldaddresstheseissuesandenhancetheadoptionofVBParrangementsaswellasthedevelopmentanduseofreal-worldevidenceneededforsucharrangements.PrioritizeFinalizingtheHCEIDraftGuidanceandProvideAdditionalClarification.QuestionsremainwithrespecttopermissiblemanufacturercommunicationofHCEIastopartiesengagedinVBParrangements.ThedraftguidanceleavesambiguityaboutwhethertherestrictiononsharingHCEIwith“healthcareprovidersinchargeofprescribing”wouldapplytoemergingVBParrangementsbetweenmanufacturersandhealthcareproviders.Failuretoincludehealthcareprovidersthatengageinrisk-bearingactivitiescouldhindervalue-basedarrangementsthatalignmanufacturersandproviders.Suchalignedalternativepaymentmodelsmaybeincreasinglyimportantfornewmodelsofcaredeliveryinvolvingmedicalproductstosucceed.

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IncludingprovidersinsignificantVBParrangementsalignswithCongressionalintentintheCuresAct’sextensivemodificationofthedefinitionofHCEI,whereinformationmaybesharedwith“apayor,”...orothersimilarentitywithknowledgeandexpertiseintheareaofhealthcareeconomicanalysis,carryingoutitsresponsibilitiesfortheselectionofdrugsforcoverageorreimbursement.’’Likepayersandpublichealthdecisionmakers,health-careprovidersthataresubstantiallyatriskinemergingalternativepaymentmodelsshouldhaveaccesstoHCEI.ImplementaSafeHarborforVBPArrangements.RWEandoff-labelinformationoutsidethecontextofHCEIwillcontinuetobeanissueasVBParrangementcontractparticipantsseektoaddresscareissuesbeyondFDAlabeledindicationstoimprovequality,outcome,andcostmetrics.FDAshouldprovideasafeharborforVBParrangementsthatutilizeoutcomeandotherclinicalvalue-definingmetricsthatmayfalloutsidethescopeofqualifyingHCEIdisseminationunderthepayerguidance.Additionally,FDA’scurrentdraftpayerguidancehasproposedthatHCEIdisseminationmeetpromotionalrequirementsunder21CFR314.81(b)(3)(i),suchaspre-disseminationsubmissionusingFormFDA2253.Inlightofthesensitivenatureofcommercialnegotiations,asafe-harborshouldexcludecommercialnegotiationsfrompromotionalreportingrequirements.PermitDisseminationofHCEIRelatedtoanInvestigationalIntendedUse.FDAshouldpermitpartiesengagedinaVBParrangementtoshareHCEIaboutanunapprovedindicationforanapproveddrugthatisundergoingclinicalinvestigation.ThissuggestionalignswithFDA’sproposaltocreateanewsafeharbortopermitsharingcertaininformationaboutanewinvestigationaldrugordeviceinordertoassistpayersandpublichealthdecisionmakerswithbudgetplanningandformularydesign.ThenegotiationprocessforVBParrangementsisoftentime-consumingandinvolvesmanyoperationalchallenges.Aswiththesafeharborfornewdrugsanddevices,ifsponsorsarerestrictedfromstartingthenegotiationprocesspriortoaproduct’sapprovalforanewindication,thereisariskthatpatientswillberestrictedingainingaccesstoemerginginnovativetherapiescoveragebecauseVBParrangementsthattiepaymentstoresultscannotreadilybeimplemented.Thisisespeciallytrueforbreakthroughtherapiesthatareapprovedunderexpeditedpathways.Leverage21stCenturyCuresAuthoritiestoFacilitatetheDevelopmentofVBPArrangementswithRWE.InlightoftheimportanceofRWEtoVBParrangementsandcurrentoperationalchallengesassociatedwithdefiningvalue,FDAshouldleveragethenewlyacquiredCuresauthoritiestofacilitateVBParrangementsdevelopment.Undernewsection505(f)entitled“utilizingrealworldevidence,”FDAmustdevelopaprogramevaluatingthepotentialuseofRWEtosupportapprovalsofnewindicationsforpreviouslyapproveddrugsundersection505(c)andpostapprovalstudyrequirements.Aspartofthisinitiative,FDAmustissuedraftguidancebyDecember13,2018establishinganewframeworkforsection505(f),whichincludesinformationonsourcesofRWE,gapsindatacollectionactivities,methodologiesforcollectionandanalysis,RWEpriorities,RWEremainingchallenges,and“potentialpilotopportunitiesthattheprogramestablished.”ApotentialpilotprograminvolvingVBParrangementsthatsubstantiallydependonoutcomescanfacilitateFDA’sunderstandingofthechanginglandscapeinhealthcareandthedataandoperationalchallengescurrentlyinvolved

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withidentifying,collecting,andanalyzingrealworlddata.ThistypeofpilotmayalsoinformFDAabouttheuseofenforcementdiscretionorthecreationofasafe-harborforVBPagreementsthatgeneratemeaningfulevidence.Additionally,anyRWE-basedpilotsshouldgenerallybeusedasanopportunitytonotonlyinformregulatorydecisionmakingaboutlabeling,butalsotohelpinformFDA’sthinkingontheuseofRWEinmanufacturercommunicationswithpayersandproviders.PromulgateRegulationsonOff-labelPromotion.FDAshouldpromulgateregulationswithrespecttoitspoliciesonoff-labelpromotionandpermissiblemanufacturercommunications,atleastinthecontextofVBParrangementsthatrepresentasubstantialshiftawayfromvolume-basedpayment.FailuretodosoleavespartieswithinterestsinVBParrangementswithlessclearsupportfromanon-bindingguidancedocumentandapiecemealregulatorylandscapetodeterminewhatinformationwouldbepermissibleorimpermissibletocommunicate.TheAnti-KickbackStatuteTheAKS’limitationsonVBParrangementscouldbeaddressedmostclearlythroughOIG’screationofadistinctsafeharborforVBParrangementsthatrepresentasubstantialshiftfromthevolume-basedpaymentincentivesmotivatingmuchofcurrentAKSrequirements.Shortofthatsolution,however,theOIGcouldtakearangeofstepsdescribedbelowtofacilitateVBParrangements.AlthoughmanyoftheAKSproposalsdiscussedbelowareinterrelated,somewouldrequiremoresignificantworktoimplement,andtheycanbepursuedindependentofeachother.Reinterpret“VolumeorValueofAnyReferrals”intheContextofVBPArrangements.Currently,manysafeharborsdonotprotectanarrangementthattakesintoaccountthevolumeorvalueofanyreferrals.Forexample,theprovisionofEHRsoftwarecannotdirectlytakeintoaccountthevolumeorvalueofbusinessgeneratedbetweenthecontractingparties.89ThisbroadprohibitioncouldstifleinnovativeVBParrangementsthatinclude,forexample,incentivepaymentsforimprovingquality,whichmaybepartiallyorentirelytiedto“volume”or“valueofreferrals”involvingprovidersandmedicalproductsincoordinated-carearrangementsintendedtoenablesuccessinimprovingoutcomesandloweringtotalcostsofcare.CMS/OIGshouldissuesub-regulatoryguidanceformalizingtheOIG’srisk-assessmentforcertainsafeharborsinordertoallowflexibilitytoenterintoVBParrangements,wherethebenefitsofthearrangementstocoordinateandimprovecareoutweighpotentialrisks.ThismaybemorelikelyincaseswheretheVBParrangementisheavilyresults-based,inwhichpaymentsdependsignificantlyonlimitingtotalcostsofcareandimprovingoutcomes.Suchoutcomeimpactscouldprovidestrongevidencethatthearrangementwillnotleadtounnecessaryprogramspending.Reinterpret“FairMarketValue”intheContextofVBPArrangements.Currently,CMS/OIGimposeafairmarketvaluerequirementonmostsafeharbors.Thisrequirescontracttermsto

8942C.F.R.§1001.952(y)(5).

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reflectan“arms-length”transaction.However,VBParrangementsmayormaynotalwaysreflectfairmarketvalue,suchaswhereamanufacturer/payeragreestoprovidereduced-priceddataanalyticservicesinconjunctionwithitsproduct,becausesuchanalyticscanimproveoutcomesinthecontextofaVBParrangement.Therefore,asdescribedabove,CMS/OIGshouldissuesub-regulatoryguidanceclarifyingthatitwillmodulatethefairmarketvaluerequirementwhenevaluatingVBParrangements.Alternatively,CMScouldrevisitspecificsafeharborsthroughrulemakingandclarifythattherequirementwillbemodulatedinthecontextofVBParrangements.ReviseExistingSafeHarborstoFacilitateVBPArrangements.Asdiscussedabove,therearecriticalcomponentsofVBParrangementsthatfalloutsidetheprotectionofexistingsafeharborsbecauseofhownarrowlythesafeharborshavebeendesigned.ToencouragefurtherdevelopmentandadoptionofVBParrangements,theOIGcouldpursuetargetedreformsthatchangespecificlimitingprovisionsofselectsafeharbors.Theserevisionswouldbesubjecttonotice-and-commentrulemakingtoensurerobuststakeholderinput.Asastartingpoint,therevisionscouldinclude:• RevisetheElectronicHealthRecordsItemsandServicessafeharbor90toallowforagreater

rangeoftechnologies(informationsharing,dataanalytics,cybersecurityassistance,etc.)andrelatedtraininginthecontextofVBParrangements.Inaddition,therevisionwouldallowthedonationofthesetechnologiestobecontingentonpurchaseofgivenproduct,andpotentiallyincludeabilitytorestrictusedependingonthetypeoftechnology.Itwouldalsoextendthissafeharborpermanently(itendsin2021)forpracticesnotcurrentlyusinganelectronichealthrecordssystem.

• RevisetheWarrantiessafeharbor91toallowamanufacturertoreimburseproviders/payerswithancillarycoststhatareassociatedwithaproduct’sproximatefailuretoperformasexpected.Suchmanufacturerremunerationcouldbeprovidedin-kindorotherwiseinconnectionwithproductsthatfailtoachieveapre-determinedsetofclinicaloreconomicoutcomesinaVBPcontract.

• RevisethePersonalServices/Managementsafeharbor92toallowmoreflexibilityinenteringintothesecontracts,particularlybyremovingtherequirementthatthesecontractsnotbeforlessthanoneyear.Additionally,therevisionwouldacknowledgethatpersonalservices/managementassociatedwithVBParrangementsarenotbusinessreferrals.

• RevisetheDiscountssafeharbor93toallowdifferentialpricingassociatedwiththesellingofoneproductorserviceatreducedchargetoinducethepurchaseofadifferentproductorservice.Asdiscussedabove,thesafeharborpermitsthisonlyifthesameprogramusingthesamemethodologyreimbursesthegoodsandservices.ThisrequirementisundulyrestrictiveinthecontextofVBParrangements.Additionally,thetimehorizonforwhena

9042C.F.R.§1001.952(y).9142C.F.R.§1001.952(g).9242C.F.R.§1001.952(d).9342C.F.R.§1001.952(h).

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buyermustincludeadiscountintheircostreportshouldbeextendedtoseveralyearsinordertoencourageVBPcontractstosupportbetterevidenceandgreaterlong-termbenefitsoftherapies.Finally,OIGshouldclarifythatthesafeharborextendstocommercialpayersaswell.

EstablishaVBPArrangementSafeHarbor.ThetargetedchangestoexistingsafeharborprovisionsdiscussedabovewouldfacilitateVBParrangements,butdonotamounttoamorecomprehensiveapproachdesignedspecificallytoadvanceVBParrangementsthatsubstantiallydifferfromtraditionalFFSpayments,fromaprogramintegritystandpoint.Inparticular,theOIGcouldaimtodevelopadistinct,comprehensivesafeharborthatisdesignedtoaddressthemostcommonelementsunderlyingdesirableVBParrangements.TheOIGshouldsubjecttheproposaltonotice-and-commentrulemakingandincorporaterobuststakeholderinputintothesafeharbor’sdesign.Asastartingpoint,thesafeharborwould:• Recognizecoordinationandintegrationbetweenstakeholdersthatspecifiesclear,

meaningful,andsubstantialgoalsforimprovingpatientoutcomesandreducingcosts,includingasignificantshareofpaymentstiedtomeasurableperformancebenchmarks/outcomes.

• Recognizethatthebundlingofitemsandservicesmaybeintegraltotheoperationaland/orfinancialsuccessofaVBParrangement.

• Requireup-frontagreementonthetermsthatcomprisetheVBParrangementandtotheextentsometermsarecontingentupontheoccurrenceornon-occurrenceofafutureevent,thosetermsshouldbeadequatelyidentifiedinwriting.

• Recognizethattime-horizonsinaVBParrangementcanbelong-term,andthatarrangementsthatencourageimprovinglong-termimpactsmaybeparticularlychallengingtoimplementundercurrentrules.

• RecognizethatVBParrangementsmayincludegainsharingandrisk-sharingastheprimaryfinancingmechanism,includingrisk-sharingaroundtotalcostsofcare.

• Permitflexibilityinselectingpre-specifiedclinicalendpointsconsistentwithFDArulesandguidance.

MedicaidBestPriceMBPrequirementsprovidesomeimportantflexibilitiesforVBPreforms.94However,additionalreformstotheMBPcouldenhancelegalcertaintyforstakeholdersandspurinnovationinmoreadvancedVBParrangements.ReinterpretTheBundledSalesProvision.Asdiscussedabove,95thebundledsalesprovisionthatenablesmanufacturerstoallocatediscountsproportionatelyacrossaqualifiedbundledsalecouldserveasaregulatoryfootholdfortheagencytoencourageVBParrangements.Inparticular,CMSshouldissueclarifyingguidancethata“performancerequirement”underthebundledsalesprovisioncouldincludeperformanceoftheproductitself,asopposedtothe

94SeeSachsetal.,supranote82.95Seeinfran.86.

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performanceobligationsofthecontractingparties.CMScoulddothisthroughamanufacturerreleasebypositingabundledsalesexampleinvolvingaVBParrangementswhereinthemanufactureragreestoofferthebaserebateifagivendrugisplacedonformulary,andanadditionaloutcome-basedrebateifthedrugfailstomeetspecifiedoutcomes.Throughsuchamanufacturerrelease,CMScouldquicklyenablemanufacturers,aspartofVBParrangements,toallocateoutcome-baseddiscountsacrosspatientpopulations,therebyavoidingthetriggeringofMBPthroughasinglesale.ClarifythatRebatesBasedonValueNegotiatedbyMedicaidManagedCareOrganizationsDoNotTriggerMBP.InitsJuly2016guidancetostates,CMSwasnotclearwhetherMedicaidMCOscouldnegotiaterebatesinVBParrangementswithmanufacturerswithoutconcernofimplicatingMBP.96CMSshouldissuesub-regulatoryguidanceclarifyingthatMedicaidMCOscannegotiatetheirownrebatesrelatedtooutcomesandothermeasuresofvaluewhilefallingwithinthesupplementalrebateexception.CMScouldrequirestateMedicaidagenciestoreviewandapproveMedicaidMCO-negotiatedrebates.IfCMSdeterminesthatitsregulationsrequirestatestonegotiaterebatesonbehalfofMCOsinordertosatisfytherequirementsofthesupplementalrebateexceptiontotheMBP,itmaybeappropriatetopursuenotice-and-commentrulemakingtochangetheregulatorytextitself.97IftheagencydeterminesitlacksstatutoryauthoritytoauthorizeMedicaidMCOstonegotiatetheirownrebatesunderthesupplementalrebateexception,Congressshouldstepinandlegislativelyauthorizethesearrangements.98AllowingMedicaidMCOstonegotiateVBParrangementsindependentlyofthestateMedicaidagencywouldinjectmoreflexibilityintothetypesofVBParrangementsthatdrugmanufacturersandMedicaidMCOscouldenterintoforMedicaidmanagedcarepopulations,especiallyasmanagedcareincreasinglypenetratesstateMedicaidprograms.ModifyBasisofMeasurementForMBPInTheContextofVBPArrangements.Oneregulatoryreform,whichisalsoproposedbySachsetal.,thatCMScouldadoptinordertoencourageVBParrangementsinvolvesrevisingtheregulatoryrequirementthatbestpricebecalculated“onaunitbasis.”99CMSmaybeabletoestablishanalternativemethodtoreportingbestpricethatdoesnotrelyonaper-unitbasis.100Aper-unitbasisapproachdoesnotalignwellwithVBPreformsthatdonotpayprimarilybasedonvolume.Forexample,apopulation-based

96SeeMedicaidDrugRebateProgramNotice–ForStateTechnicalContacts,CMSNo.176(July14,2016)(“[W]eurgethatstatesconsidernegotiatingsupplementalrebateswithmanufacturersforsomeoralloftheirMedicaidmanagedcaredrugclaims.Beforenegotiatingsupplementalrebatesonmanagedcaredrugclaims,statesshoulddeterminetheimpactoftheirdecisiontocollectsupplementalrebatesontheircontractswithmanagedcareorganizations”).9742C.F.R.§447.505(c)(7)(“RebatesunderthenationalrebateagreementoraCMS-authorizedsupplementalrebateagreementpaidtoStateMedicaidAgenciesundersection1927oftheAct.”).98CMSestablishedthesupplementalrebateexceptionaspartofitsinterpretationof§1927(c)(1)(C)(ii)(I)oftheSSA,whichrequiresrebatespaidbymanufacturersundersection1927tobeexcludedfromthecalculationofbestprice.See“MedicaidProgram;PrescriptionDrugs,”72Fed.Reg.39142(July17,2007).99SeeSachsetal.,supranote82,at5-6.100TherearequestionsregardingCMS’statutoryauthoritytopursuethisapproach,however.Asaresult,legislativeactionmayberequired.

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alternativepaymentmodelmaybasereimbursementforadrugonaper-member(PMPM)orper-patientper-month(PPPM)amount,asopposedtothenumberofunitsactuallysold.Underthecurrentsystem,suchanarrangementisdiscouragedbecausemanufacturersarerequiredtoreduceaPMPM/PPPMarrangementtoits“per-unit”basisforreportingpurposes.Thismayproducearebategreaterthan23.1percentofAMPandtherebytriggerMBP,especiallyamongsmallerpatientpopulations.Asaresult,theper-unitbasisrequirementeffectivelydiscouragesstakeholdersfrompursuinginnovativeVBParrangementsthatdepartfromsettingpriceonthevolumeofgoodssold.EstablishSection402DemonstrationsforVBPArrangements.CMSshouldexerciseitswaiverauthorityundersection402theSocialSecurityAmendmentsof1967101toestablishademonstrationthatwouldenableVBParrangements.Section402authorizesHHS/CMStowaiveanyprovisioninTitleXIX(Medicaid)“insofarsuchrequirementsrelateto…reimbursementorpaymentonlyforsuchitemsorservicesasmaybespecifiedintheexperiment.”102Historically,CMShasnotreliedonsection402toconductMedicaid-onlydemonstrationsandtheagencyhasoptedinsteadtousesection402toestablishMedicare/Medicaiddual-eligibledemonstrationsinconjunctionwithMedicaidsection1115waivers.103However,thelanguageofsection402contemplatesademonstration/experimentthatcouldinvolveawaiveroftheMBPrequirement(andotherpricereportingobligations)forthepurposesoffacilitatingVBParrangements.104LegislativeSolutionsFDARegulationofManufacturerCommunicationsWhiletheregulatoryapproachesdescribedabovecoulddiminishtheneedforlegislativereformsrelatedtoFDAregulationofmanufacturercommunicationsandimplicationsonVBParrangements,policymakerscouldalsoconsiderlegislativesolutionstoencouragethebroaderadoptionofvalue-basedarrangementsintheU.S.EstablishaSafe-HarborforPre-ApprovalCommunicationofHCEI.ThePharmaceuticalInformationExchange(PIE)Actof2017(H.R.2026)isoneexampleoflegislationthatwouldcreatealegislativesafeharborforpre-approvalcommunicationsinvolvingHCEIor“scientific

101Codifiedat42U.S.C.1395b-1.10242U.S.C.§1395b-1(b).10342U.S.C.§1315;seealsoRobertSchmitzetal.,“EvaluationofMedicareAdvantageSpecialNeedsPlans:SummaryReport,”MathematicPolicyResearch,Inc.,(Sept.30,2008),availableathttps://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/Reports/downloads/Schmitz2008.pdf(discussingthetransitionfromdual-eligibledemonstrationstoMedicareAdvantagespecialneedsplansforMinnesotaSeniorHealthOptionsdemonstration,MinnesotaDisabilityHealthOptionsdemonstration,andMassachusettsSeniorCareOptionsdemonstration).104Therearethreedifferentprovisionsinsec.402thatmayserveasthepredicateforsuchademonstration.See42U.S.C.1395b-1(a)(1)(A),(C),and(F).Sec.402waiverauthorityispotentiallymuchbroaderthansection1115waiverauthority,whichdoesnotincludesection1927oftheSocialSecurityActwhereintheMBPrequirementishoused.

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information.”105ItwouldapplythesameHCEIsafe-harborstandardsestablishedundertheCuresActtoHCEIandscientificinformationwithrespecttoaninvestigationaldrugoranewinvestigationaluse(i.e.,followingthe“CARSE”standards).Similartotheregulatoryproposalsdescribedabove,anapprovedproductwithanewunapprovedindicationwouldonlyqualifyforthesafeharborifasupplementalapplicationhasalreadybeenfiled,whichmitigatesconcernsthatpermittingthistypeofcommunicationwoulddisincentivizepremarketreviewandsubmissions.Indeed,encouragingtheinclusionofrequirementstodevelopevidenceonadditionalindicationsaspartofVBParrangementscouldhelpadvanceFDAprioritiesrelatedtoimprovingreal-worldevidencerelatedtocurrentlyoff-labelindicationsandclaims.Asstatedpreviously,theabilitytocommunicateHCEIpreapprovalwithrespecttobothaninvestigationalproductandaninvestigationalnewuseisexceedinglyimportantforpayersforbudgetplanningandformularydesign.WithrespecttoVBParrangements,theabilitytocommunicatethisinformationisevenmorevitalinlightoftheoperationalchallengesandtimeconstraintsinvolvedwiththeirimplementationandexecution.CreateRegulatoryCertaintyforOff-LabelInformationtoSupportValue-basedCareModels.LegislationcouldalsoincludeasafeharborforpartiesengagedinVBParrangementsgenerally,suchasforhealthcareprovider-manufacturerinnovativeVBParrangements,particularlywhenthoseeffortswillcreatemoreevidencerelatedtoclaimsthatarecurrentlyoff-label.ModifyingthescopeoftheHCEIprovisionoraddinganewprovisionundersection502(a)oftheFederalFood,DrugandCosmeticActwouldresolveanyambiguitythatcurrentlyexistsunderFDA’scurrentlyproposedpolicyonHCEIcommunication.BycreatingastatutorycarveoutforonlypartiesengagedinsubstantialVBParrangementsandalternativepaymentmodels,andbyhighlightingwaysinwhichsucharrangementscouldsupportthedevelopmentofneededevidence,FDAmaymaintainitspublichealthobjectivesoflimitingdisseminationofoff-labelinformationtoprescribingprovidersandalsocreatenewincentivesforthedevelopmentanduseofreal-worldevidence.

Whileregulatorysolutionsareavailable,FDA’sregulationofmanufacturercommunicationsaboutoff-labelinformationisanunsettledarea.RecentcaselawonConstitutionallimitationsofFDApolicyfurthercompoundsinterpretingthisframework.AlegislativesafeharborinvolvingVBParrangementpartieswouldcreatethemostcertaintyformovingVBPreformsforward.Anti-KickbackStatuteEstablishClearPolicyDirectionWithRespecttoVBPArrangements.Asdiscussedabove,CongresshasalreadyprovidedtheOIGwithbroadauthoritytoestablishsafeharborsthatcouldaccommodateVBParrangements.Congresscouldestablishstatutorysafeharborsasithasdoneinthepast,butthisrouteseemsinefficientconsideringthattheOIGcouldadministrativelyachievethesameresultunderitsexistingauthority.Instead,Congresscould

105“Scientificinformation”wouldbroadlyinclude“clinicalandpre-clinicaldataandresultsrelatingtoanunapproveddrugtherapy,ordrugindication,orotherconditionofusebeinginvestigatedordeveloped.”

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maketheAKSmoreamenabletoVBParrangementsisthroughdirectingtheOIGtoissueorreviseexistingsafeharborsinaccordancewithbroadpolicyobjectivestosupportVBParrangements.MedicaidBestPriceEstablishSafeHarborsforMBP.LegislativeactioncouldincreasethedevelopmentandadoptionofVBParrangements.Inparticular,CongresscouldauthorizeCMStocreateaspecificprocessforexemptingadvancedVBParrangementsfromtheMBPrequirement.ModifyCenterforMedicareandMedicaidInnovation(CMMI)StatutoryAuthority.AsamorelimitedsteptosupportfurtherdevelopmentoftheseVBPexemptions,CongresscouldalsoexpandCenterforMedicareandMedicaidInnovation(CMMI)authoritytowaivesection1927oftheSocialSecurityAct.106ThiswouldenableCMMItocreateVBParrangementdemonstrationsthatprotectmanufacturersfromtheMBPandotherrelatedrequirements.Inconjunctionwiththisexpandedwaiverauthority,CongresscouldauthorizeCMMItotestdemonstrationsthataredesignedtospurprivatesectorinnovation,107asothershavesuggested.108Forexample,CMMIcouldproposealimiteddemonstrationthattestsaVBParrangementinvolvingprimarilyorexclusivelynon-Medicareandnon-Medicaidbeneficiaries.ThesedemonstrationswouldwaivetheMBPandotherrelatedrequirements,althoughitisimportanttonotethatabsentCongressionalauthorizationtomakesuccessfulwaiverspermanent,theMBPandrelatedrequirementswouldreactivateaftertheCMMIdemonstrationconcludes.ModifyBasisofMeasurementforMBPthroughLegislation.Whilearegulatoryproposalwaspresentedaboveonthistopic,CMS’regulatoryeffortstomodifytheper-unitbasisforreportingMBPcouldfacesignificantstatutorylimitations.Asaresult,CongressmayneedtoauthorizealternativemethodologiesforimplementingtheMBPrequirement.Inparticular,CongresscouldstatutorilyestablishanalternativemethodologyforcalculatingMBPthatismoresensitivetoVBParrangements,suchasrequiringthatMBPbecalculatedonanaggregatebasisacrossapatientpopulation.ThiswouldresonatewiththeshifttowardspersonalizedmedicinebyallowingforsophisticatedVBParrangementsthatfocusonaligningfinancialincentiveswithusingaspecifictherapyinawaythatmaximizespatientresponsesinapopulation,notwithmaximizinguseofthetherapy.Conclusion

Thecomingdecadepromisesanunprecedentedwaveofnoveltechnologiesandtransformativetherapiesthathavethepotentialtodramaticallyimprovethelivesofpatients.Ensuringaccess 106CMMI’swaiverauthorityextendstoallofMedicareandselectprovisionsofMedicaid,noneofwhichinclude§1927.See42U.S.C.§1315a(d)(1).107Currently,CMMIisauthorizedtoonlytestdemonstrationsthataddressdeficienciesorpotentiallyavoidableexpendituresintheMedicareorMedicaidprogram.SeeU.S.C.§1315a(b)(2)(A).108SeeSachsetal.,supranote82,at8-9.

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forpatientswhilereducingavoidablehealthcarecostswillbecriticaltorealizingthefullvalueofthesetechnologiesandtherapies.Giventhestrugglesofexistingregulatoryframeworksdesignedforfee-for-servicepaymenttoaccommodatehigh-valueuseofthesetherapies,VBParrangementsaregainingtractionasameansofbetteraligningthepaymentfortechnologiesandtherapieswiththevaluetheyproduceandtopromoteadequatepatientaccesswhileavoidingunnecessarycosts.AlthoughVBParrangementsalsocontinuetofaceoperationalandlogisticalchallenges,wehavedescribedhowlegalandregulatorybarriersimpedetheirdevelopmentandexpansion,especiallyofVBPmodelsthatdepartsubstantiallyfromfee-for-servicepayment.ThisWhitePaperhasidentifiedlimitedflexibilitywithinthreestatutoryandregulatoryframeworksthatstakeholdersfrequentlyciteasimpedimentstoVBP:theFDA’sregulationofmanufactureroff-labelcommunications,theAKS,andtheMBPrequirement.InlightofthesparseflexibilityandhighcomplianceriskassociatedwithpursuingVBParrangementsundercurrentlegalrequirements,werecommendFDA,OIG,CMS,andCongresstakecertainstepstosignificantlyfosterlegalcertaintyandincentivizethefurtherdevelopmentandadoptionofVBParrangements.Untilthesebarriersareresolved,eitherthroughregulatoryorlegislativeaction,VBParrangementsmaymoveforwardslowly,withintheconstraintsofthesesystemsbasedprimarilyonvolume-basedpayments,effectivelyhinderingthehigh-valuetechnologicalinnovationanddeliverysystemreformthatmoreadvancedVBParrangementscouldachieve.Regulatoryinnovationtoaddresstheseobstaclesshouldmatchandsupporttheinnovationsin21stcenturytechnologiesandhealthcareorganizations,byprovidingaclearpathwayforaligningmanufacturersandhealthcareprovidersbehindpaymentapproachesthatdeliverbetteroutcomesandavoidunnecessaryhealthcarecosts.