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Change to Medicaid’s ‘best price’ rule may bring unintended consequences

15 Apr 2024 10:27 AM | Addie Thompson (Administrator)

More than one in five Americans rely on Medicaid, which is now the nation's largest health insurer.

Worryingly, these Americans may soon lose access to certain life-saving medicines because of a well-intentioned, but poorly designed, regulatory change that federal officials seem intent on advancing.

For more than 30 years, Medicaid's "best price" rule has made a simple and reasonable demand of drugmakers: Give Medicaid your lowest price or pay Medicaid a rebate of 23.1 percent of the "average manufacturer price" that's paid by retail pharmacies and wholesalers.

Especially for expensive drugs still under patent and less likely to be available at cut-rate prices, that minimum 23.1 percent discount helps poor Americans get the medications they need at a cost that's reasonable for taxpayers.

Sure, there are some technical aspects of all the definitions and procedures associated with the current rule that keep plenty of lawyers and accountants busy. But the basic idea is clear: Drugmakers don't get to excessively profit off the Medicaid population by charging the program more than they charge any other buyer.

Even though this formula is working reasonably well, officials now want to change it.

Instead of requiring drugmakers to offer Medicaid the best price available to any other single buyer—whether it's a commercial insurer, a hospital, a drug wholesaler, or a pharmacy benefit manager (PBM)—officials want the Medicaid price to reflect all the discounts given to those other entities combined.

The net effect would be lower Medicaid drug costs. In theory, that's a good thing. Who wouldn't want Medicaid to secure a better deal for beneficiaries and taxpayers?

But in practice, the proposed rule would prove almost impossible to implement and enforce—due, in part, to ongoing obfuscation by pharmacy benefit managers.

These secretive middlemen oversee the details of prescription drug benefits for most insurance plans, including the Medicaid "managed care" plans administered by private insurers. PBMs have deliberately made the drug supply chain as opaque and complex as possible in order to protect their tens of billions in annual profits.

There is currently no system in place to track the separate entities that handle a drug as it moves through the byzantine supply chain—and therefore no way to collect data on discounts at each "stop" (pharmacy benefit managers, insurers, wholesalers) along the way from manufacturer to patients. Drug companies often aren't even aware of the contract terms between retail pharmacies and PBMs.

Simply put, the numerous hurdles PBMs have introduced into the system of drug procurement—every one of which is also a tollbooth contributing to their bottom lines—have made it challenging to collect the information Medicaid wants.

A reform proposal worthy of consideration would start by asking PBMs what they do to actually benefit the Medicaid program as a whole and patients in particular. Spoiler alert: The answer is nothing.

Instead the proposal heaps the burden of demonstrating compliance on drugmakers and creates more paperwork for federal officials, further depleting essential resources that should be going to care for Medicaid beneficiaries.

A reform proposal worthy of consideration would start by asking PBMs what they do to actually benefit the Medicaid program as a whole and patients in particular. Spoiler alert: The answer is nothing.

Instead the proposal heaps the burden of demonstrating compliance on drugmakers and creates more paperwork for federal officials, further depleting essential resources that should be going to care for Medicaid beneficiaries.

Consider ailments like sickle-cell disease. Over 93 percent of patients hospitalized with the condition are Black. Just a few months ago, two biotech companies rolled out new gene therapies for sickle cell disease.

Would biotech companies research such conditions if the proposed rule were in effect? Or would firms instead opt to develop drugs for privately insured—and thus more lucrative—patient populations instead? The answer is obvious.

Medicaid is hardly perfect. Many doctors won't accept Medicaid patients, which leads to long wait times at the providers who do participate in the program. Enrolling, and staying enrolled, forces the poorest and most vulnerable Americans to navigate a considerable amount of red tape and paperwork.

But within the program, prescription drug coverage is a bright spot. By law, virtually every FDA-approved medicine is available to Medicaid enrollees at little to no cost. And the existing "best price" rule enables Medicaid to devote just 5.6 percent of its total spending towards prescription drugs—whereas in the health care system as a whole, prescription drugs account for about 11 percent of total spending.

When there are so many broken components of our health care system, and Medicaid specifically, that deserve attention, it's bizarre that federal officials are looking to overhaul the one piece of the program that's indisputably successful. Those officials would be wise to refocus their attention on rent-seeking middlemen—before their plan wreaks unintended consequences on the most vulnerable Americans.


Contact

Jritchie@scalliance.org
803-256-9003
PO Box 2573
Columbia, SC 29202

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