The US spends far more on prescription drugs than other comparable countries mainly because of higher prices for brand-name drugs. However, studies of prescription drug spending are limited by the lack of information on confidential rebates that drug manufacturers pay to Medicaid and to other payers. This methodological brief describes an approach to improve the estimate of Medicaid’s “best price” provision. The methodology was tested in a cross-sectional study of the 18 highest cost brand-name drugs from 2015 to 2019.
Why this matters
A key dataset widely used by policy researchers, SSR Health, makes prescription drug rebate information available in their US Brand Rx Net Pricing Tool. SSR Health has published quarterly data since 2007 that contain rebates averaged across all payers and apportioned between Medicaid and non-Medicaid payers. However, the estimated Medicaid rebate in SSR Health does not account for the Medicaid “best price” provision (figure 1). “Best price” is the lowest price available to wholesalers or retailers in the commercial sector and is incorporated into Medicaid’s basic rebate. For certain brand-name drugs, this rule can have a large effect on Medicaid’s net price.
How we did it
We use the rules that define Medicaid’s prices along with additional data sources to present a method for more accurately estimating Medicaid net prices. To develop and apply our methodology, we used Medicaid State Drug Utilization Data (Medicaid SDUD) from 2015 through 2019 published by the Centers for Medicaid and Medicare Services (CMS) to proxy Medicaid total sales. We used Medicaid Drug Rebate Program data published by CMS to identify launch dates to estimate Medicaid’s manufacturer rebate provisions. We used SSR Health data to estimate wholesale acquisition cost (WAC) unit prices, WAC launch prices, total net sales, WAC-to-net-discount ratios, and total sales at WAC. We also used MediSpan to estimate WAC unit prices and WAC launch prices missing from SSR Health.
What we found
Adding the best price provision increases the size of the Medicaid rebate and thus reduces estimates of net spending by Medicaid. Reducing the estimates of net Medicaid spending increases estimates of net spending by non-Medicaid sources of coverage (including commercial and Medicare Part D insurers) when applied to aggregate data from SSR Health. In results published in a cross-sectional study, we find that the best price rebate reduced the net prices of about one-third of the top-selling 18 brand-name drugs we examined. While the inflation-linked rebate accounted for a much larger share of the Medicaid rebate compared with the best price rebate, the best price rebate was meaningful for several drugs.