Outcomes-based Contracts

As new drugs and biologics enter the market with increasingly high prices - often exceeding millions of dollars - they present challenges for providers, hospitals, and Medicaid Health Plans operating under traditional Medicaid payment models. In response, MDHHS is using outcomes-based contracts as a new tool to help ensure drug costs are consistent with the value provided to Medicaid beneficiaries.

Outcomes-based contracts (OBCs) are value‑based agreements between Michigan Medicaid and pharmaceutical manufacturers. These agreements align drug pricing or payments with the observed or expected clinical value of a drug in a defined patient population. Medicaid programs may enter into OBCs under the authority provided by CMS Final Rule 85 FR 87000. OBCs may include:

• Evidence-based measures that link the cost of a drug to existing evidence of its effectiveness and potential value.

• Outcomes-based measures that link payment for a drug to its actual performance in patients or its impact on reducing other medical expenses.

These agreements are part of Michigan Medicaid’s value‑based care approach. Under OBCs, manufacturers may provide supplemental rebates tied to predetermined access criteria, clinical outcomes, or coverage during data collection on clinical effectiveness. OBCs help manage prescription drug spending by holding manufacturers accountable for the price and value of their products. As with all Medicaid-covered drugs, Medicaid and Healthy Michigan Plan beneficiaries are responsible only for applicable copays.

A list of drugs with active OBCs is available here: Outcomes_Value- Based Agreements

Below are ways that MDHHS is using OBCs to offset the costs of special coverage for high-cost drugs as well as cell and gene therapies.

Drugs Carved Out of Hospital Bundled Payments

Due to increasing requests from hospital providers to carve expensive cell and gene therapies out of Diagnosis Related Group (DRG) payments, MDHHS implemented Provider Bulletin MMP 24-12 requiring a product to have an existing OBC to be eligible for a DRG carve‑out. When carved out, providers submit a separate claim for the drug through Medicaid Fee‑for‑Service.

The list of drugs administered in inpatient settings that are carved out of DRG is available here: List of Drugs Carved out of DRG

Drugs Carved Out of Medicaid Health Plans

Medicaid Health Plans are responsible for covering all healthcare services for their enrollees in accordance with their Comprehensive Health Care Program Contract with MDHHS.  However, certain drugs and other pharmacy-dispensed products are carved out of Medicaid Health Plan coverage and instead covered through Fee-for-Service. That list is available here: Pharmacy Products Carved Out of MHP

In addition, beginning in Fiscal Year 2026, physician-administered injectable drugs may only be carved out of Medicaid Health Plan responsibility if the manufacturer enters into an OBC with MDHHS to offset costs. If a drug is carved out of Medicaid Health Plan responsibility, the plan remains responsible for covering all medically necessary treatments billed under the medical benefit.

The list of physician-administered injectable drugs carved out of Medicaid Health Plans is available here: Physician-Administered Drugs and Biologicals Carved Out of MHP

Physician-Administered Injectable Drugs Covered Under the Pharmacy Benefit

Providers frequently request pharmacy benefit coverage for physician‑administered injectable drugs to avoid stocking costly medications. To manage these requests, MDHHS issued Provider Bulletin MMP 25-19, which requires a physician-administered drug to have an existing OBC in order to be billed to the Fee‑for‑Service pharmacy benefit. Physician-administered drugs billed to the pharmacy benefit for administration in the outpatient hospital setting are not subject to the Michigan Outpatient Prospective Payment System (OPPS) reduction factor.

A current list is available here: MIRx select high cost admin drugs therapies OBC

For Manufacturers