On Wednesday, June 17, the Centers for Medicare and Medicaid Services (CMS) proposed a series of reforms to the way that pharmaceutical prices are reported to the Medicaid program, in an effort to encourage the use of innovative contracting models throughout both Medicaid and the private sector.
The proposed rule would not represent a major change to prescription drug pricing or policy in the way that some of the administration’s other proposals had envisioned. However, it is a thoughtful tweak to existing regulations that would help mitigate uncertainty for pharmaceutical companies interested in entering into these agreements.
In this post, I describe the problem the proposed rule seeks to solve, review the details of the proposal, and situate it within the administration’s other policymaking efforts on drug regulation and pricing.
Concern Regarding Barriers Created By Medicaid Best-Price Reporting
At present, pharmaceutical companies selling drugs to state Medicaid programs must remit to Medicaid a rebate for each unit of a drug they sell to that program. By statute, innovator drug companies must remit at least 23.1 percent of a drug’s Average Manufacturer Price, and states are empowered to seek additional rebates on top of this minimum requirement. If the drug company offers an even bigger discount to a set of predominantly private-sector payers, though, Medicaid is entitled to that “best price.” (The statute establishing the best-price requirement exempts prices paid by major public-sector payers, including Medicare Part D and the Veterans Administration, from this calculation.)
CMS is concerned about the intersection of