Michael Ciarametaro, VP for Research at the US National Pharmaceutical Council (NPC), outlines issues surrounding the outdated Medicaid Best Price (MBP) and why there is a dire need for payment innovations to provide a way for US payers and manufacturers to share financial risk and ultimately ensure that patients can access treatments.


Our national healthcare payment system is not designed for innovative payment approaches. Medicaid Best Price (MBP) is one of the most significant challenges in our outdated payment system.

The United States is experiencing a period of significant biopharmaceutical innovation that spans a broad spectrum, from the use of curative therapies for Hepatitis C to treat large populations, to the use of gene and cell therapies to treat more targeted populations. These types of treatments present their own payment challenges, whether it’s managing the budget surge for effectively treating large populations or managing the uncertainty associated with large, upfront payments for cell and gene therapies. They also share a common problem: our national healthcare payment system is not designed for innovative payment approaches. Medicaid Best Price (MBP) is one of the most significant challenges in our outdated payment system.


Over 30 years ago, Congress mandated the “Best Price” policy to ensure that Medicaid, a joint federal and state government health insurance program for low-income and disabled beneficiaries, paid the lowest price available to any payer. MBP 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.


States received USD 36.2 billion in Medicaid rebates due to MBP in 2018, according to the Kaiser Family Foundation. Although its original intent may have been to keep costs as low as possible for cash-strapped states, MBP now stymies payment innovation in this country — not only for Medicaid, but all health plans — at a time when stakeholders are motivated toward creative solutions.


In fact, the National Pharmaceutical Council (NPC) partnered with the Duke-Margolis Center for Health Policy to survey payers and manufacturers about their efforts around value-based purchasing agreements. They found that value-based arrangements were far more prevalent than previously assumed, but many respondents identified MBP as a barrier to moving them forward, often causing negotiations to be abandoned.


The need for these payment innovations is acute, as they provide a way for payers and manufacturers to share financial risk and more importantly, ensure patients’ access to treatments for such chronic conditions as heart disease, diabetes and asthma; acute treatments such as that for Hepatitis C; as well as cell or gene therapies. There is hope: CMS is considering changes to MBP that may fix some of the problems inherent in current regulations.


In another example, one creative financing mechanism for treatments with a high upfront cost or acute use that has been proposed is an annuity arrangement. Since MBP is currently determined quarterly, that means MBP would be based on the first annuity payment rather than the total price of the therapy over time. The result is an MBP that is a fraction of the actual price. In addition, current MBP regulations limit the time horizon for annuity payments to three years. Potential curative therapies may require longer follow-up periods to link outcomes to the annuity payment.


Finally, there is the issue of managing health while maintaining a balanced state budget. Two states, Louisiana and Washington, have begun directly contracting with manufacturers to provide therapeutics at a fixed rate (the “subscription model”) to achieve certain outcomes. States must manage budgets year-over-year; any increase in one line item will require increased revenue or cuts elsewhere in the budget. While innovative, these subscription approaches can cause fluctuating per-unit costs under current MBP rules and could discourage utilization of value-based purchasing agreements.


Despite setbacks to creative financing mechanisms due to MBP, stakeholders are still working toward potential solutions until the barriers can be addressed. The National Pharmaceutical Council has partnered with MIT’s NEWDIGS FoCUS (Financing and Reimbursement of Cures in the U.S.) to craft some new pricing mechanisms designed to encourage payer-manufacturer collaboration in negotiating and completing value-based purchasing agreements. It is in the best interest of healthcare stakeholders to incentivize and promote payment innovation through multifaceted approaches that dismantle the barriers posed by Medicaid Best Price and other outdated regulations.