CMS Proposes Changes to Medicaid Best Price

Paying for prescription medicines based on their value to patients is increasingly seen as a promising technique to combat rising medication costs, but federal regulations have hampered the broader use of value-based arrangements. That could change under a proposal announced this week to lift some Medicaid Best Price restrictions, making it easier for commercial health insurers to enter into value-based payment arrangements with biopharmaceutical manufacturers.

Under current law, Medicaid’s best price rules limit the rebates and innovative value-based agreements for medications. Medicaid’s best price is set quarterly based on the single lowest price available from the manufacturer to any entity, such as payers and providers, in the United States. The regulations stipulate that a manufacturer must provide Medicaid either the maximum rebate in the market or a 23.1 percent rebate, whichever is higher. For value-based arrangements based on patient experience or patient-outcomes, any rebates for performance could reduce the single lowest price available. For these reasons, the Best Price framework within the Medicaid Drug Rebate Program currently poses a barrier to broader negotiation and implementation of value-based agreements with state Medicaid and commercial health plans.

Proposed changes announced by the Centers for Medicare and Medicaid Services (CMS) include calculating Best Price based on a blend of prices, not just successes or failures in a single value-based agreement, reporting multiple “best prices” of a therapy if the prices are tied to a value-based agreement, and calculating price outside of the current three-year window.

The National Pharmaceutical Council’s research has shown that Best Price can chill efforts to negotiate value-based arrangements, particularly in conjunction with other regulatory barriers. In a survey of health plans and manufacturers to understand value-based contracting, the need to reform Medicaid Best Price was cited as a critical complication to developing value-based agreements.

CMS could be taking another positive step by allowing manufacturers to exclude the value of copay coupons from the calculation of Best Price if the full value of the coupon is passed on to the consumer and is not subject to a copay accumulator program. This proposed step could help to reduce out-of-pocket costs for consumers.

CMS’ proposed changes are an important first step in allowing payers and biopharmaceutical manufacturers to test innovative financing mechanisms. NPC will be reviewing the proposed rule to determine the degree to which it will facilitate new payment approaches.

Ultimately, reducing regulatory barriers like Best Price can help to make the U.S. health care system more efficient and effective at delivering care to patients.