February 16, 2023

Three New Prescription Drug Innovation Models Latest Action on Drug Pricing

As the Biden administration moves ahead to implement provisions of the Inflation Reduction Act (IRA), including those related to drug negotiation and inflationary rebate, the administration announced three Medicare and Medicaid demonstration projects also focused on addressing the costs of medications.

On February 14, 2023, Secretary of Health and Human Services Xavier Becerra announced that the Center for Medicare & Medicaid Innovation (CMMI), the research arm of the Centers for Medicare & Medicaid Services (CMS), will implement three demonstration models that the department sees as complementing the IRA provisions. If successful, the models could become or inform permanent Medicare or Medicaid payment policies.

The announcement describes three models to be tested:

  • A Medicare Part D initiative that would establish $2 monthly copayments for generic medications used to treat common chronic conditions.
  • A Medicaid project focused on the emerging field of cell and gene therapies.
  • A Medicare Part B model that would reduce payments for medications approved via the Food and Drug Administration’s (FDA) Accelerated Approval pathway while the sponsors generate evidence from confirmatory trials.

Each of the three areas covered by the models has been the subject of increasing interest, particularly the Accelerated Approval pathway given the controversial decision by Medicare to limit payment for a set of medications to treat Alzheimer’s disease approved via the pathway.

Part D Generics Model

The Part D model would work with plan sponsors to establish a standardized list of approximately 150 generic medications that would be offered for a maximum copay of $2 per month. Drugs included in the model would be those to treat common, chronic conditions, such as high blood pressure and high cholesterol. This would build on provisions from the IRA that will cap annual Part D out-of-pocket costs at $2,000. CMMI would evaluate the impact this model on overall healthcare quality and cost for enrollees, including costs associated with preventing or reducing costs associated with hospitalizations and emergency department visits. The administration has not announced a specific timeline for this model but has directed CMS to begin it as soon as is feasible.

Medical Cell and Gene Therapy Model

The cell and gene therapy model would involve state Medicaid agencies (SMAs) and manufacturers of cell and gene therapy products. While this type of therapy development is still a relatively embryonic field, it continues to attract interests from many, including patients, researchers and industry sponsors as well as payers and regulators given the price tags associated with the therapies, with many exceeding $1 million per treatment and one product at the $3 million mark.

The model will allow states, on a voluntary basis, to allow CMS to negotiate and enter into outcomes-based agreements (OBAs) with cell and gene therapy manufacturers on the states’ behalf. The model recognizes the minimal uptake to date in states entering into value-based purchasing arrangements for such therapies and seeks to have CMS take on key functions for the states, including developing the outcomes that payment would be based upon, and would create a larger patient pool than any single state. HHS believes therapy manufacturers would be interested in participating because the model would facilitate their market expansion efforts by reaching pricing agreements that cover multiple states rather than having to negotiate with each individual state.

A number of questions and considerations going forward include what the specific payment models will be, including the possibility of an upfront payment with additional payments paid out based on clinical outcomes, a rebate approach that would refund a portion of the payment if outcomes are not met, and an annuity-like model paid out over time and tied to outcomes. The timeline calls for CMS to announce specifics of the model between 2024 and 2025 and to begin testing in 2026.

Part B Accelerated Approval Model

The Part B Accelerated Approval Model requires CMS to develop payment models for drugs receiving accelerated approval from the FDA. This model would be mandatory for Part B providers and is intended to incentivize drug sponsors to complete post-approval trials that confirm the clinical benefits of their products. This proposal comes on the heels of statutory changes enacted in the 2023 Appropriations omnibus to strengthen the FDA’s authorities to enforce the timely completion of confirmatory trials for accelerated approval and to withdraw approval for products that do not demonstrate clinical benefit.

In presenting the model, HHS recognizes the tensions between products receiving accelerated approval and payer access policies and notes in particular the concerns about product sponsors not completing confirmatory studies to confirm the efficacy of a product. At the same time, HHS recognizes the desire patients and providers have for therapies, particularly where there is an unmet medical need.

Although there is no stated implementation timeline, the administration directed CMS to work with FDA to determine whether this kind of payment model would be appropriate and, if so, enact it as soon as is feasible. In a nod to the sensitivities of this particular issue, the announcement states that CMS may use rulemaking to gather stakeholder input to inform model development.

Additional Areas of Research

In addition to proposing the models above, HHS has tasked CMMI with evaluating models focused on accelerating adoption of and access to biosimilar medications, promoting greater transparency in drug pricing to inform beneficiary and provider decision-making, and developing approaches to pay for cell and gene therapies in the Medicare Fee for Service program.


All three models demonstrate the administration’s continued efforts to advance policies to reduce the costs of prescription medications. Although drug sponsors and some other stakeholder groups may oppose the use of these models, the action represents a fairly measured approach in that CMMI will first test and evaluate the effectiveness of these models prior to rolling them out more broadly, a process that typically takes multiple years.

Key indicators will be receptivity, interest or non-interest from the biopharmaceutical sector, providers and, in the case of the proposed cell and gene therapy model, Medicaid agencies. In a statement issued following the announcement, the Biotechnology Innovation Organization (BIO) was positive on the generic and cell and gene therapy models but critical of the Accelerated Approval proposal.

Another group to watch closely will be Congress for signs of support of or opposition to the models proposed. Stakeholders interested in advancing or refining the ideas further should pursue opportunities to engage CMMI directly while also responding to public comment opportunities.

The material contained in this communication is informational, general in nature and does not constitute legal advice. The material contained in this communication should not be relied upon or used without consulting a lawyer to consider your specific circumstances. This communication was published on the date specified and may not include any changes in the topics, laws, rules or regulations covered. Receipt of this communication does not establish an attorney-client relationship. In some jurisdictions, this communication may be considered attorney advertising.

Related Legal Services

The Faegre Drinker Biddle & Reath LLP website uses cookies to make your browsing experience as useful as possible. In order to have the full site experience, keep cookies enabled on your web browser. By browsing our site with cookies enabled, you are agreeing to their use. Review Faegre Drinker Biddle & Reath LLP's cookies information for more details.