Revisions to Medicaid Best Price Rule

Precision financing tools have begun to be developed in order to meet financing challenges associated with durable cell and gene therapies (Figure 1).1 However, implementation barriers still remain before these tools bridge the gap between manufacturers and payers.

Figure 1

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One of these implementation challenges Medicaid drug price reporting and rebate rules was discussed in a workshop led by Mark Trusheim (Strategic Director, Massachusetts Institute of Technology [MIT]) at this year’s conference.2 The 1990 Medicaid “Best Price” Rule ensures that Medicaid receives rebates at least as large as commercial payers. This rule enhances affordability for certain therapies, but hinders the ability of manufacturers to enter into value-based contracts with commercial payers, as this exposes them to significant financial risk, particularly with regard to cell and gene therapies. An example of this would be a hypothetical scenario in which a small health plan enters into a performance-based contract with a manufacturer with a 100% rebate paid if patients do not respond to therapy; if the health plan only covers one patient receiving this therapy and the patient does not respond, the plan receives a 100% rebate, and this 100% rebate would then apply to each Medicaid state plan regardless of the outcomes of the Medicaid covered patients.

The Centers for Medicare & Medicaid Services (CMS) is now implementing a rule that may help to mitigate challenges associated with the Medicaid Best Price Rule and promote the execution of more value-based contracts for cell and gene therapies. One aspect of the Final Rule, which goes into effect on 1st July 2022, introduces tiered Medicaid best price reporting based on therapy performance bands. In accordance with this tiered system, different prices will be able to be reported for each performance band, allowing for multiple best prices. This flexibility addresses a number of challenges associated with the Medicaid Best Price Rule, such as the single-patient problem described above (Figure 2). Indeed, modelling studies demonstrate that the implementation of multiple best prices increases the availability of value-based access agreements to commercial plans and the rule has the potential to reduce misalignment between manufactures and payers regarding who pays for what outcomes.2 Unfortunately, the Multiple Best Price Rule is likely to limit manufacturer flexibility regarding value-based agreements due to administrative burden, and thus customisation for commercial plans may become problematic.

Figure 2

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From the Medicaid perspective, the Final Rule permits state Medicaid programs to choose whether they opt-in to multiple best pricing. If they choose not to, state Medicaid programs will receive the best price of all non-value-based commercial contracts. These programs will still receive rebates but will likely overpay for the value of cell and gene therapies. For state programs that do opt-in, multiple best pricing maintains Medicaid rebates and facilitates alignment between the prices Medicaid receives with the value of therapies based on performance. However, the states themselves will be directly responsible for executing the contracts, while Medicaid will only be responsible for reporting the rebates required for each performance band (based on the commercial contracts). As such, states will require the necessary funds and infrastructure in order to report patient outcomes and receive the proper rebate as dictated by performance tier. 

Overall, it appears likely that the new CMS Final Rule addresses challenges associated with the original Medicaid Best Price Rule and will support the expansion of value-based agreements, though at the expense of flexibility in these types of contracts. If indeed this new rule helps to break down policy barriers to the adoption of value-based agreements, the next step in ensuring that innovation within the healthcare delivery system keeps pace with innovation in therapies will be to address administrative and operational complexity, including accurate and timely reporting of patient outcomes.


  1. Paying for Cures Toolkit. Massachusetts Institute of Technology (MIT). Available online here. Last accessed June 2022.
  2. Workshop WS204: Could Gene Therapy Value-Based Purchasing Become Common Thanks to the New CMS Rule on Medicaid Best Price? ISPOR International Congress, Washington, D.C., 2022.

If you would like any further information on the themes presented above, please do not hesitate to contact Connor Davies, Senior Analyst (LinkedIn). Connor Davies is an employee at Costello Medical. The views/opinions expressed are his own and do not necessarily reflect those of Costello Medical’s clients/affiliated partners.