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A Brief Reminder on Why We Care About Best Price
As our regular readers know, we talk a lot about Medicaid best price on this blog, particularly because of the intersection of this central price reporting rule and new and emerging value-based arrangements. My colleague Haider did a great deep dive into best price rules earlier this year in the context of a Trump administration regulation that would allow manufacturers to set multiple best prices in order to encourage value-based arrangements. Way back in 2016 (man, we are getting old!), I did a nice primer that explained for our readers why Medicaid best price and innovative payment arrangements are often at odds. But I still think it is worthwhile to remind our readers why we are even having this conversation.
By way of background, under the Medicaid drug rebate program,
The best price policy dates back to the beginnings of the Medicaid Prescription Drug Rebate Program (passed as part of the Omnibus Budget Reconciliation Act of 1990, Pub. L. 101-508) which had at its core the idea that state Medicaid programs should be granted a most-favored customer status. Section 1927(c)(1)(C) of the Social Security Act defines best price, in part, to mean:
"with respect to a single source drug or innovator multiple source drug of a manufacturer . the lowest price available from the manufacturer during the rebate period to any wholesaler, retailer, provider, health maintenance organization, nonprofit entity or governmental entity within
In regulations at 42 C.F.R. § 447.505, CMS has further clarified the meaning of best price as:
"for a single source drug or innovator multiple source drug of a manufacturer (including the lowest price available to any entity for an authorized generic drug), the lowest price available from the manufacturer during the rebate period to any wholesaler, retailer, provider, health maintenance organization, nonprofit entity, or governmental entity in
Of course - price reporting is complicated - and there are a lot of exceptions and exclusions to the above definitions. But for purposes of our discussion today, it is good enough to know that best price is generally the "best price" offered by a manufacturer to a defined set of purchasers, with a number of exceptions. While this rule has at its root some very noble policy goals, it also has had the unintended impact of preventing some novel, value-based arrangements. Why? Because in a traditional value-based arrangements (such as an outcomes-based agreement), in which a manufacturer agrees to refund a payer if a therapy fails, that refund could re-set a manufacturer's best price. For example, if a manufacturer offers a
How Does the Pfizer Warranty Program Avoid Best Price?
In many ways, from the perspective of the payer or individual, the
Now is the time I need you to scroll back up and look at the statute and regulations! If you read the fine print of
Remember the wording of the best price definition? "The lowest price available from the manufacturer." When
What Does CMS Have to Say About All of This
There is no warranty safe harbor or exception from best price, but
Recall I mentioned the Trump administration regulation published in late 2020 which has now been the subject of multiple delays? Well in that regulation, which dealt in part with a new policy which would (if ultimately implemented) permit manufacturers to establish multiple best prices to encourage the use of value-based arrangements, CMS opined on - and appeared to bless- the warranty model:
The premium paid by the manufacturer to a third party to warrant a drug and provide benefits to payers and patients when certain clinical or performance measures are not achieved serves as an incentive to payers, providers, and patients to purchase the drug. Therefore, the premium paid by a manufacturer reduces the drug's price, and must be included in ''best price.'' However, the benefits paid by the third party in the event the drug did not meet certain clinical or performance measures are exempt from ''best price'' because payments made from the third party to the payer do not represent a price available from the manufacturer to any best price eligible entity as provided in § 447.505(a) and does not represent a manufacturer sale to an AMP eligible entity consistent with § 447.504(b) or (d). Therefore, under this warranty model, a manufacturer would pay both Section 1927 rebates for the drug, as well as pay for a premium for a warranty policy, the value of which they would have to be included in the calculation of their best price, regardless of whether the manufacturer uses a VBP arrangement that results in multiple best prices.
CMS' takeaway: while the premium payments from
What's Next
Going forward, we expect other manufacturers may follow on the heels of
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