Medicaid ‘best price’ approach to drug costs needs an upgrade

This article was originally published by STAT News on November 10, 2017.

D iscussions on access to prescription drugs are back in vogue in the nation’s capital, where the Senate recently convened a fiery hearing on the drug delivery system and President Trump is reiterating a commitment to addressing the cost of prescription drugs. One way to rein in drug costs would be to reduce government interference in arrangements between drug makers and insurers that reward better patient outcomes and lower costs.

Prescription drugs account for about 10 percent of total health care spending, but it is the sector of health care that touches Americans’ lives most deeply and often.

To date, lawmakers have found little consensus on how to move forward in the drug affordability debate, other than agreeing on the simple fact that it’s complicated.

“We’ve been working on health insurance, which we find to be very complicated. Where the money goes in prescription drugs is more complicated,” said Sen. Lamar Alexander (R-Tenn.), chairman of the Committee on Health, Education, Labor, and Pensions, last month.

“It’s all Greek,” added Sen. Lisa Murkowski (R-Alaska).

While there are many factors contributing to the price tag of a prescription at the pharmacy counter, some are fairly straightforward. Indeed, one of the proven drivers of higher costs is entirely of Congress’s own doing.

The Medicaid best price law, enacted in 1990, requires drug manufacturers to charge the Medicaid program the lowest or “best” price they negotiate with any other buyer and send a rebate check to every state Medicaid department so they receive that same price.

It sounds good on paper. After all, Medicaid serves the worthy purpose of providing health coverage to the poorest among us, and is paid for with scarce taxpayer dollars. Lawmakers have every reason to ensure the program doesn’t get taken for a ride. In practice, however, the rule can stymie innovative new payment models outside of Medicaid and leave consumers worse off.

The best price law could, for example, hamper manufacturers and payers who wish to experiment with value-based arrangements. Say a manufacturer offers a payer a money-back guarantee if a treatment is not effective. That puts it at risk of a Medicaid best price of zero dollars, which would require that the drug be given away free of charge to every state Medicaid program. That would clearly discourage innovative payment models that drive value for patients.

Don’t take my word for it. Last year, Scott Gottlieb and Kavita Patel — respectively the current FDA commissioner and a senior aide in the Obama White House — both concluded that the Medicaid best price law could create “a significant disincentive for manufacturers to offering indication and outcome-based prices.”

A March 2017 report from the Network for Excellence in Health Innovation — whose members range from the American Cancer Society to the Tufts University School of Medicine — backs up Gottlieb and Patel’s claims, saying that the best price regulation “creates a unique set of challenges for value-based purchasing arrangements that could prove counterproductive for both manufacturers and payers.” The report adds that, “Given this level of risk and uncertainty, manufacturers would understandably avoid [value-based] contracts.”

Even the nonpartisan Congressional Budget Office cautioned about the ineffectiveness about the best price law, noting that the law’s inflexibility “may have had unintended consequences for both Medicaid and non-Medicaid purchasers.”

Some players in the prescription drug cost debate are trying to deny what the Congressional Budget Office, a bipartisan pair of health experts, and a wealth of real-life evidence have told us to be true about the best price statute. A recent article in Duke University’s Journal of Health, Politics, Policy and Law, for example, dismissed the best price policy as “not as serious a problem as drug manufacturers sometimes make it out to be” and “not simply a convenient excuse for refusing to try something new.”

But, as it turns out, federal law and the threat of government penalty are pretty good reasons to be cautious about trying “something new.”