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Understanding the Limitations of Medicare's Pricing Model for State Drug Policies

As states continue to grapple with the challenge of making prescription drugs more affordable, the Rare Access Action Project (RAAP) has issued a warning against attempting to apply Medicare's Maximum Fair Price (MFP) framework in state-level initiatives. This concern is outlined in a recent issue paper, which serves as the second part of a series focused on Prescription Drug Affordability Boards (PDAB). The key message of the report is clear: Medicare's MFP is not a viable model for state drug pricing and could lead to a variety of unintended consequences.

Key Findings of the RAAP Study

The crux of RAAP's argument lies in the assertion that while MFP is often touted as a negotiated price, it is fundamentally rooted in Medicare's unique statutory structure. Under the Inflation Reduction Act (IRA), the Centers for Medicare & Medicaid Services (CMS) identifies a select number of drugs and imposes a Maximum Fair Price that is backed by strict federal enforcement measures. This setup includes civil monetary penalties and excise tax ramifications for manufacturers that fail to comply. According to Michael Eging, the Executive Director of RAAP, "Medicare's leverage is intrinsically tied to its nationwide reach and the mandatory participation it enforces. States simply do not possess the same authority."

When Medicare's MFP is removed from this overarching federal framework, it transforms from a negotiation tool into just a reimbursement ceiling. Eging emphasizes that such ceilings often lead to increased financial strain on pharmacies, providers, and ultimately, patients, rather than fostering lower acquisition costs.

Barriers to Implementation at the State Level

One of the core findings of the RAAP study is the existence of structural barriers that hinder states from effectively replicating Medicare's pricing model. These include:

1. Limited State Authority: The federal Employee Retirement Income Security Act (ERISA) restricts state oversight in key areas of the commercial market, thus limiting the ability of state governments to implement substantial changes in drug pricing mechanisms.
2. Reimbursement vs. Acquisition Pricing: Unlike Medicare's MFP, which modifies the acquisition costs that manufacturers must accept, PDABs' upper payment limits (UPLs) typically only cap what insurers can repay. This discrepancy means that when reimbursements fall below the actual acquisition costs, pharmacies, hospitals, and medical professionals must bear the financial ramifications.

Jennifer Snow, a researcher from Apteka Policy, elaborates on the downstream effects of these dynamics, indicating that they could lead to narrower patient care networks and increased barriers to accessing therapies.

Alternative Strategies for Drug Affordability

Given the limitations of attempting to apply Medicare’s model at the state level, RAAP advocates for a fresh approach. The organization recommends that states focus on initiatives that directly target patient costs while ensuring that care delivery remains unaffected. These alternative strategies include:

• - Targeted Caps on Out-of-Pocket Expenses: Limits on the amount that patients must pay for their prescriptions can significantly ease the financial burden.
• - Enhanced PBM Transparency: Making pharmacy benefit managers (PBM) operations more transparent could help ensure that discounts and savings are passed through to consumers.
• - Innovative Risk Pooling and Reinsurance Models: These models can be particularly beneficial for expensive, low-volume therapies, helping to spread risks and costs more equitably.
• - Safeguards on PDAB Authority: Implementing measures to protect access points for vulnerable populations can also be beneficial.

Conclusion

In conclusion, RAAP emphasizes the importance of maintaining policy discipline in efforts to improve drug affordability. Eging asserts, "States are right to focus on affordability, but it's crucial that the reforms instituted do not disrupt patient care delivery. The priority should be to reduce the costs patients face at the pharmacy counter without generating reimbursement distortions that could limit treatment options."

For a more comprehensive understanding of why Medicare's MFP is not suitable for state drug pricing initiatives, please refer to the full issue brief available on RAAP’s website.

By fostering dialogue on these complex issues, stakeholders can work toward solutions that genuinely enhance access and affordability for patients in need.