In its May 2023 Medicaid Program; Misclassification of Drugs, Program Administration and Program Integrity Updates Under the Medicaid Drug Rebate Program (MDRP) proposed rule[1], the Centers for Medicare & Medicaid Services (CMS) proposed a significant shift in its approach to calculating the “Best Price” under the MDRP. The proposal would require cumulative discounts and rebates for a given drug to be aggregated—or “stacked”—across different entities in the pharmaceutical supply chain. The goal, according to CMS, is to ensure that Best Price calculations reflect the totality of price reductions applied to drugs and to improve pricing transparency.
However, in a May 2024 press release[2], CMS announced that it would not finalize the proposal at this time. Instead, the agency plans to gather additional information from manufacturers on Best Price stacking methodologies to inform future rulemaking. As a result, the September 2024 MDRP final rule[3] did not include the Best Price “stacking” proposal, and while CMS has indicated that further rulemaking may occur, no timeline has been provided.
Should CMS choose to implement this proposal, it could signal a significant shift in how drug pricing and Medicaid rebates are calculated. Industry experts and stakeholders are closely monitoring for CMS’s response to feedback, as the final decision could have far-reaching effects on Medicaid pricing strategies and broader commercial discount and rebate practices.
Background on Medicaid Best Price
Within the framework of the MDRP, “Best Price” refers to the lowest price at which a drug manufacturer offers a drug to any eligible entity, including wholesalers, retailers, or healthcare providers.[4] This price includes all forms of discounts, rebates, or any transactions that may adjust the price, whether directly or indirectly.[5] Additionally, Best Price is a key factor in calculating the 340B ceiling price for a given product. Manufacturers participating in the 340B drug discount program are required to provide covered entities with drugs at a price equal to or below the 340B ceiling price, which is determined by subtracting the total Medicaid unit rebate amount (URA) from the Average Manufacturer Price (AMP).
In May 2023, CMS proposed revisions to the regulatory definition of Best Price. The proposed revision states: “The manufacturer must adjust the best price for a drug for a rebate period if cumulative discounts, rebates, or other arrangements to best price eligible entities subsequently adjust the price available from the manufacturer. Cumulative discounts, rebates, or other arrangements must be stacked to determine a final price realized by the manufacturer for a covered outpatient drug, including discounts, rebates, or other arrangements provided to different best price eligible entities.”1 This proposed change would require manufacturers to “stack” all price concessions throughout the supply and payment chain for each unit of a drug, aggregating price concessions provided to multiple entities. The agency explained that “stacking” would ensure that the Best Price reflects the lowest actual price at which the manufacturer made that unit of the drug available.1
This proposal marks a significant shift from the current framework, as it mandates aggregating discounts provided to various entities involved in pharmaceutical distribution. Currently, stacking is only required when multiple concessions are provided to the same entity on the same unit of product. Under this proposed approach, the final Best Price would include the cumulative effect of discounts provided to different stakeholders, even if no single entity in the chain directly benefits from the total aggregated discount. For example, if a manufacturer offers a discount to a wholesaler, a rebate to a pharmacy, and an additional rebate to an insurer, CMS’s proposal would require these discounts to be aggregated when reporting the Best Price for Medicaid rebate purposes.
Industry Concerns and Potential Impacts
This proposal has sparked substantial criticism from organizations like the Pharmaceutical Research and Manufacturers of America (PhRMA)[6] and the Biotechnology Innovation Organization (BIO).[7] They argue that aggregating discounts could exceed CMS’s legal authority and create a “hypothetical” price that is not available to any single purchaser. They warn that this legal ambiguity could lead to increased litigation and regulatory challenges for manufacturers, who may face conflicting interpretations of the law.
Furthermore, there are concerns that implementing this stacking methodology would present considerable operational challenges. The logistics of tracking individual drug units across the supply chain to calculate cumulative discounts would necessitate an unprecedented level of coordination among manufacturers, wholesalers, pharmacies, and insurers. Stakeholders contend that the pharmaceutical supply chain currently lacks the infrastructure to track discounts at such a granular level, and achieving this coordination could be both complex and resource-intensive, potentially driving up costs that may eventually be passed on to patients.6,7 The American Society of Gene and Cell Therapy has specifically highlighted that these challenges could be particularly harmful to manufacturers of cell and gene therapies.[8]
Additionally, critics have argued that the stacking methodology would likely result in significantly increased rebate liabilities for manufacturers. This would be especially challenging given the removal of the Medicaid rebate cap effective January 1, 2024, which previously limited Medicaid rebates to 100% of a drug’s AMP.[9] Without this cap, manufacturers could face rebates greater than 23.1% of AMP, which is the minimum rebate for most brand-name drugs. If the Best Price calculation results in a discount greater than 23.1% of AMP, the net rebate would be the difference between AMP and the Best Price. Any additional inflationary rebate would then be added to the base rebate to calculate the total rebate, further increasing manufacturers’ financial obligations.
Stakeholders also caution that, if finalized, this policy could profoundly affect market dynamics and patient access, as manufacturers may need to adjust their discount structures. They are concerned that manufacturers may be forced to scale back price concessions, which could limit affordable medication options for vulnerable populations. This impact may also extend to the 340B Drug Discount Program, which supplies discounted drugs to underserved communities. If CMS’s proposal is implemented, it could reduce the availability of affordable medications in safety-net hospitals and clinics, exacerbating health disparities.7
Looking Ahead: Future Considerations
The future of CMS’s Best Price “stacking” proposal remains uncertain, and Applied Policy will be closely monitoring the agency’s next steps. Although CMS has not set a timeline for further rulemaking on this issue, continued discussions among policymakers, manufacturers, and healthcare stakeholders will be essential. The final decision from CMS on this proposal could have widespread implications for drug pricing, the Medicaid program, and the overall landscape of pharmaceutical distribution.
[1] 88 FR 34238, https://www.federalregister.gov/d/2023-10934
[2] https://www.cms.gov/newsroom/press-releases/cms-statement-misclassification-drugs-program-administration-and-program-integrity-updates-under
[3] 89 FR 79020, https://www.federalregister.gov/d/2024-21254
[4] 42 CFR Section 447.505(a), https://www.ecfr.gov/current/title-42/part-447/subpart-I#p-447.505(a)(Best%20price)
[5] 42 CFR Section 447.505(b), https://www.ecfr.gov/current/title-42/part-447/section-447.505#p-447.505(b)
[6] https://www.regulations.gov/comment/CMS-2023-0092-0055
[7] https://www.regulations.gov/comment/CMS-2023-0092-0058
[8] https://www.asgct.org/ASGCT/media/about/Manufacturer-MDRP-Reporting-Rule-Letterhead,-signed.pdf?ext=.pdf
[9] H.R.1319 – American Rescue Plan Act of 2021, https://www.congress.gov/117/plaws/publ2/PLAW-117publ2.pdf