Innovative Contracting for Pharmaceuticals and Medicaid's Best-Price Rule

14 Pages Posted: 29 Apr 2017 Last revised: 13 May 2017

Rachel Sachs

Washington University in Saint Louis - School of Law

Nicholas Bagley

University of Michigan Law School

Darius N. Lakdawalla

University of Southern California - Schaeffer Center for Health Policy and Economics; RAND Corporation; National Bureau of Economic Research (NBER)

Date Written: April 28, 2017

Abstract

In recent years, drug manufacturers and private payers have expressed interest in novel pricing models that more closely link a drug’s price to its value. Indication-based pricing, outcome-based pricing, drug licenses, and drug mortgages have all been discussed as alternatives to paying strictly for volume. Manufacturers and payers have complained, however, that Medicaid’s “best-price rule” inhibits their ability to enter into these new pricing arrangements. This paper examines the best-price rule and assesses to what extent, if any, it might frustrate the goal of paying for value. We conclude that the best-price rule is not as serious a problem as it is sometimes made out to be, but that it is also not simply a convenient excuse for refusing to try something new. The law here is complex, and moving to a pay-for-value model for drugs will require close coordination between manufacturers, payers, and regulators.

Keywords: drugs, drug prices, Medicaid, value-based purchasing

Suggested Citation

Sachs, Rachel and Bagley, Nicholas and Lakdawalla, Darius N., Innovative Contracting for Pharmaceuticals and Medicaid's Best-Price Rule (April 28, 2017). Journal of Health Politics, Policy and Law, Forthcoming; U of Michigan Public Law Research Paper No. 549. Available at SSRN: https://ssrn.com/abstract=2959939 or http://dx.doi.org/10.2139/ssrn.2959939

Rachel Sachs

Washington University in Saint Louis - School of Law ( email )

Campus Box 1120
St. Louis, MO 63130
United States

Nicholas Bagley (Contact Author)

University of Michigan Law School ( email )

625 South State Street
Ann Arbor, MI 48109-1215
United States

Darius N. Lakdawalla

University of Southern California - Schaeffer Center for Health Policy and Economics ( email )

635 Downey Way
Los Angeles, CA 90089-3333
United States

RAND Corporation ( email )

P.O. Box 2138
1700 Main Street
Santa Monica, CA 90407-2138
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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