United States: Massachusetts Governor Seeks New Tools To Negotiate Rebates

Last Updated: January 30 2019
Article by Ross Margulies

It was just earlier this week that we were writing about a flurry of solicitations released by the the Massachusetts Executive Office of Health and Human Services (EOHHS) seeking bids from manufacturers of select, generally high-priced outpatient drugs for supplemental rebates in MassHealth's fee-for-service and managed care programs. At that time, we noted that this exercise was likely foreshadowing the release of Governor Baker's budget proposal. In particular, we noted:

We expect that the Commonwealth is  actually expecting to receive no offers from any of the companies. As a result, we anticipate MassHealth will use this as further ammo to its arsenal in advocating with both state and Federal policymakers that it needs new tools to negotiate down prices for single source drugs (whether by waiver or state law).  Notably, the bid due date (January 18th) is also just three days before the date the Governor intends to file his budget with the legislature. We would not be surprised if the Governor includes, as he has in past years, a request for new state authority to negotiate rebates with manufacturer and institute closed formulates.

I can't say we are total prediction pros here at Medicaid and the Law, but I believe we got this one pretty right. On January 23, 2019 Governor Baker released his Fiscal Year 2020 Budget Recommendation  requesting legislative to introduce new tools to enable EOHHS to negotiate enhanced supplemental rebates with manufacturers of high-cost and/or high-volume drugs in the state's Medicaid program (MassHealth). Under the proposal, Massachusetts would be only the second state in the country (after New York) to effectively require manufacturers to enter into direct negotiations based on the "value, efficacy, or outcome of the drug", and, if no agreement is reached, impose additional obligations on the manufacturer. However, unlike the New York law, which contains no civil penalties provision, the Governor is requesting legislative authorization to impose penalties under the Massachusetts Consumer Protection Law, including civil monetary penalties, for failure to comply with the required processes. As such, if enacted by the legislature and implemented, this would arguably be the furthest any state Medicaid program has gone in leveraging supplemental rebates from manufacturers.


EOHHS Supplemental Rebate Negotiation

Under the requested supplemental rebate negotiation proposal, EOHHS would be directed to negotiate supplemental rebate agreements on behalf of MassHealth in order to "maximize value to the Commonwealth." Such agreements, according to the proposed legislative language, would be based on the "value, efficacy, or outcomes of the drug." In cases where (1) EOHHS is unable to successfully conclude negotiations for supplemental rebates; and (2) the post-rebate cost of the drug in question is expected to either exceed $25,000 per year on a per utilizer basis or else exceed $10,000,000 in post-rebate costs in the aggregate, a series of processes would go into effect:

  1. EOHHS publicly posts a "proposed" value of the drug in question on the EOHHS website;
  2. A 21-day comment period will follow the public posting of the proposed drug value (coupled with an optional hearing);
  3. Following consideration of public comments, EOHHS posts the "final" determined value of the drug on its website and engages in additional negotiation with the manufacturer in question;
  4. In the event that negotiations are unsuccessful, the Secretary has the option of referring the manufacturer to the Health Policy Commission.

Referral to Health Policy Commission

In the event a manufacturer is referred to the Health Policy Commission, the Commission will engage in a series of processes design to incentive the manufacturer to engage in supplemental rebate negotiation. In particular:

  1. The Commission is empowered to require a manufacturer to disclose certain requested records that "describe or relate to the manufacturer's pricing of that drug." The contents of the disclosures will be confidential but the Commission may produce reports summarizing the findings of the data;
  2. Following review of the data and a determination that the pricing of the drug is "potentially unreasonable or excessive in relation to the EOHHS publicly posted value," the Commission can hold a public hearing (with 30 days advance notice) and require the manufacturer to appear and testify under oath (along with members of the public and other invited experts);
  3. Within 60 days of the hearing, the Commission will produce a report on the reasonableness of the manufacturer's pricing to determine whether or not the pricing of the drug is unreasonable or excessive in relation to the posted EOHHS price;
  4. If the Commission determines the price is unreasonable or excessive, it is empowered to refer the manufacturer to the Attorney General for action under the Massachusetts Consumer Protection Law, which generally penalizes "unfair or deceptive practices," or another state law.

Note the legislation also empowers the Commission to impose civil monetary penalties (not to exceed $500,000) in the event a manufacturer fails to comply with the processes detailed above, or else make a referral to the Attorney General.

We will continue to update this story as the Legislature considers the Governor's request. If approved, it would certainly be a major development in the Medicaid drug rebate program.

To view Foley Hoag's Medicaid and the Law blog please click here

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