CMMI—The R&D Lab for Medicare and Medicaid

The Center for Medicare & Medicaid Innovation (CMMI) can be a powerful lever in promoting value-based contracting for drugs. CMMI—an independent office at the Centers for Medicare & Medicaid Services (CMS)—has huge influence for two reasons. First, Medicare and Medicaid are themselves massively large payers, so when CMS goes into value-based contracting, it has a significant effect on the market. Second, CMS can support other payers in their value-based purchasing by changing its rules.

Created under the Affordable Care Act (ACA), CMMI is the Medicare and Medicaid research and development (R&D) lab. It has two main tools—a budget of $10 billion for every 10 years and the ability to waive Medicare, CHIP and some Medicaid requirements. CMMI’s purpose is to test innovative payment models in Medicare, Medicaid and CHIP with the goal of reducing care cost and increasing care quality.

Typically, CMMI carries out its mission through model tests, sometimes called “demonstration projects.” The CMMI Model Life Cycle is a three-part process:

  • Testing: CMMI runs a small-scale pilot program.
  • Evaluation: An independent third party evaluates the pilot’s cost and quality.
  • Expansion: If the program improves quality without increasing costs, or decreases costs without harming quality, it can be made permanent, without the need for an act of Congress.

Recent RFI Announces a New Direction for CMMI

Because CMMI was created under the ACA, there was widespread speculation that it would be eliminated under the Trump administration. Instead CMS recently released a request for information (RFI) announcing a “new direction for CMMI.” The RFI, which was accompanied by a Wall Street Journal editorial by CMS administrator Seema Verma, announced the guiding principles for creating new model tests, as well as rethinking the old ones. It shared new priorities—and also provided an opportunity for those interested to submit comments and new ideas to influence CMMI’s direction.

There are six overarching principles for new model tests presented in the RFI, including:

  • Choice and competition in the market
  • Provider choice and incentives, particularly voluntary tests
  • Patient-centered care
  • Benefit design and price transparency
  • Transparent model design and evaluation
  • Small-scale testing

The six principles promote a market-based approach, including ways providers, patients, and plans can leverage regulatory flexibility, costs, contracting and innovation to improve care. They also support transparency, as well as small-scale, voluntary testing.

What Did the CMMI RFI Say About Drugs?

Among the model categories discussed in the RFI, CMMI indicated that it is specifically interested in pharmaceuticals. Although the RFI language is rather opaque, it is clear that CMMI is focusing on solutions to reduce drug costs in Medicare and Medicaid. In line with CMS’s current preference for market-based approaches, CMMI showed strong interest in using consumer cost sharing and incentives as levers.

CMMI also showed interest in encouraging value-based purchasing of pharmaceuticals. One sentence in the RFI speaks to “increase[ing] drug price competition while protecting beneficiaries’ access to drugs.” This could mean that CMMI is considering formulary flexibility in exchange for cost reduction, as long as there are adequate protections for beneficiaries.

It is important to remember that CMMI lacks the authority to waive the Medicaid best-price rule, which frequently is cited as a barrier to value-based contracting. CMS, however, has been active in using other tools to promote value-based contracting. The potential value-based arrangement announced in August 2017 for Novartis’s Kymriah is a prime example. (For more information, please see the article in our January Health Update“Gene Therapy: Pipeline of Possibilities but Challenges for Pricing.”)

Most of what we know about this arrangement is from Novartis’s own public statement describing its agreement with CMS for gene therapy as “focused on improving efficiencies in current regulatory requirements” to permit indication-based pricing. CMS has not confirmed the arrangement, but put out its own press release stating that it is “continuing to explore the development of payment models and arrangements for new and potentially life-saving treatments.” CMS also promised to issue “further guidance to explain how pharmaceutical manufacturers can engage in innovative payment arrangements.” The future guidance may shed light on how to report prices of drugs in value-based arrangements without triggering best-price obligations.

What Does the Future Hold for CMMI?

A year into the new administration, it looks like CMMI will survive, but its direction is in flux. It has yet to enact new policies, though its priorities are coming into focus, including an interest in reducing prescription drug costs and a willingness to experiment with consumer incentives, VBP and formulary flexibility.

CMMI, however, may not be the only vehicle used to address these issues. CMS guidance on value-based contracting may be coming soon and will illuminate both agency priorities and methods for prescription drug contracting.