More leeway for drug price negotiation

March 1, 2005

One important, but less-noticed, provision in the Medicare program exempts Medicare drug plans from the "best price" policy that limits the ability of health plans and PBMs to negotiate low drug prices. Now the Bush administration is looking to drop the best price requirement for all drug purchasers.

Washington, D.C. - One important, but less-noticed, provision in the Medicare program exempts Medicare drug plans from the "best price" policy that limits the ability of health plans and PBMs to negotiate low drug prices. Now the Bush administration is looking to drop the best price requirement for all drug purchasers.

Congress added "best price" to Medicaid a decade ago to encourage pharmaceutical marketers to give Medicaid their very lowest prices. Manufacturers agreed to pay rebates to state Medicaid programs of about 15% in return for a limit on offering even lower discounts to other customers. The feds subsequently provided an exemption from best price for drugs purchased by the Veterans Administration and other government agencies, including the new Medicare program. But HMOs and hospitals have complained for years that best price prevents them from negotiating low prices for their formularies. CMS administrator Dr. Mark McClellan evidently agrees and has proposed switching to a flat rebate formula for everyone. The aim is not to curb Medicaid prescription drug spending, but to help reduce costs for the broader healthcare system.

-Jill Wechsler