Magellan Rx Management releases new report, “The State of Value-based Contracting (VBC): Reinventing the Current Drug Payment Model in Medicaid”

Magellan Rx first to innovate with Medicaid VBC solutions for states grappling with the high cost of novel cell and gene therapies

August 24, 2023

EAGAN, Minn. – Aug. 24, 2023 – Magellan Rx Management (Magellan Rx), a Prime Therapeutics (Prime) company, today published a new Medicaid Pharmacy Insights report examining the current drug payment model in Medicaid, and the emerging budgetary challenges of new, multi-million dollar cell and gene therapies (CGT). The report illustrates the unique barriers facing state Medicaid programs and introduces Value Plus, the first multi-state value-based contracting (VBC) solution designed to assist state Medicaid programs in securing access to CGT for patients while helping to ensure the cost of therapy is linked to the value it promises to deliver.

Unlike most traditional treatments, CGT are viewed as one-time therapies intended to cure or significantly alter the trajectory of a person’s disease. Cell therapies are typically priced close to $500,000 per treatment while gene therapies often exceed $1 million per treatment. As illustrated in the report, these ultra-high-cost therapies have the potential to disrupt state Medicaid budget models, creating financial exposure for states. Accordingly, existing pharmaceutical purchasing models must be reinvented to address the costs of these breakthrough therapies while preserving access to care.

“Medicaid departments across the country are faced with the requirement to guarantee access to curative and life-saving medications, while also expected to find affordable solutions to pay for these high-cost drugs with limited taxpayer dollars,” said Meredith Delk, senior vice president and general manager, state government solutions. “With a focus on bringing solutions to market for the toughest challenges that our clients face, Value Plus is the first of its kind Medicaid solution that will support states – regardless of size or budget – in overcoming constraints that may limit access to potentially curative therapies and to help ensure states have financial guarantees if a therapy’s value is not realized.”

To that end, the report features Value Plus’s innovative multi-state approach, designed to assist state Medicaid programs with negotiating and executing VBCs, creating scalability and addressing the durability (lasting effectiveness) of high-cost drugs. Focused on health outcomes for patients treated with a manufacturer’s product, if predetermined individual or population level outcome metrics are not achieved, the manufacturer will refund a portion of the cost of the drug back to the state. This way, the Medicaid program pays for drugs that work and is compensated when drugs fail to achieve specific health endpoints.

As noted in the report, Medicaid provides health coverage for approximately 26% of the United States population, including many with substantial health needs.1 Prescription drug coverage is a key component of Medicaid for many beneficiaries, including children, non-elderly adults, and people with disabilities. And while the federal government provides significant funding for Medicaid, it is consistently one of the largest spending categories among state budgets annually. With the introduction of novel CGT, prescription drug spending is projected to increase meaningfully in the near-term.

Delk continued, “There are a growing number of rare diseases that can now be effectively addressed with one-time cell and gene therapies. Our goal is to mitigate the financial risk for Medicaid programs while providing a solution that helps ensure manufacturers provide the promised outcomes for the therapy.”

  1. How do states pay for Medicaid? Peter G. Peterson Foundation. Accessed Aug. 11, 2023.

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