CMS Abandonment of Outcomes-Based Payment Deal with Novartis is a Missed Opportunity

Earlier this week, Politico broke the news that the Centers for Medicare and Medicaid Services (CMS) had withdrawn its outcomes-based payment deal for Novartis’ CAR-T therapy, Kymriah, without public acknowledgement.

The Food and Drug Administration’s approval of Kymriah in August of last year was accompanied by the announcement of a novel outcomes-based agreement with CMS, in which CMS would pay for Kymriah only if patients had responded to it by the end of the first month. Now, CMS has quietly backed away from that agreement. What does the deal – and its subsequent abandonment – tell us about CMS’ involvement in outcomes-based contracts going forward?

When the CMS-Novartis deal was announced, it was rightly reported as a significant development for a number of reasons. Kymriah was the first CAR-T therapy approved by the FDA, and these products have shown great promise in the treatment of a range of blood cancers. But it came with a high list price, at $475,000 for a course of treatment. Novartis was able to point to its outcomes-based agreement with CMS to blunt the public criticism of that price.

The outcomes-based agreement was itself significant. Many scholars (including myself, here) and policy experts had argued that CMS should experiment more with different types of innovative contracting models, and should set an example for the private sector in this area. CMS’ announcement was also seen as an effort by the administration to begin extending CMS’ interest in value-based payments for medical services to medical products.

The administration has continued to advocate publicly for what it refers to as “value-based purchasing” agreements like its deal with Novartis, including in the administration’s drug pricing blueprint released this May and through the late June approval of an Oklahoma Medicaid waiver encouraging such deals with drug companies.

So why did CMS abandon its deal with Novartis, and why did it keep that abandonment secret until this week?

In their story, Politico reporters Sarah Karlin-Smith and David Pittman note that although CMS would not say why it had abandoned the deal, “administration lawyers expressed discomfort over how much Novartis itself was influencing the arrangement, including giving advice on the payment criteria for Kymriah.” The concern over the process by which the deal was reached is understandable. But if the administration believed the deal it reached was a good one, substantively, it could have gone out and defended the deal to the public.

As Karlin-Smith and Pittman note, though, there were substantive criticisms of the resulting deal, particularly its one-month time frame, that would have jeopardized its effectiveness. CMS Administrator Seema Verma said today that she did not think the deal would have been “successful as proposed,” giving credence to this idea. The administration’s decision to abandon the agreement is therefore understandable.

Novartis maintains that it still has an outcomes-based contract with treatment centers, however, suggesting that those centers may take a different view of the substance of the deal.

Its decision to abandon the agreement in secret, however, is a serious missed opportunity for the administration. CMS could have taken this opportunity to admit its mistakes, both substantively and procedurally, and to improve this deal or ensure it uses a more appropriate process for others going forward. Based on this experience, CMS could have used its convening power to devise a set of best practices for payers and companies seeking to engage in these agreements. When issuing its drug pricing blueprint or approving Oklahoma’s waiver, CMS could have acknowledged both the importance and the difficulty of successfully executing these agreements. CMS did none of those things.

Innovative contracting models like the one CMS pursued are not the single answer to our drug pricing problems, but they have a role to play particularly for new products whose long-term value may be untested. CMS missed an opportunity not only to be a leader in the development of these agreements, but also to guide others seeking to use them. Hopefully its actions on this agreement will not be repeated as it seeks to advance some of the proposals in the administration’s drug pricing blueprint.