The Medicaid best price law and its effect on pharmaceutical manufacturers' pricing policies and behavior for name brand, outpatient pharmaceutical products

After a decade of record-level price increases for outpatient prescription drugs, Congress and the Bush Administration worked together to enact a law designed to control drug costs for the Medicaid program. Enacted in 1990, the Medicaid best price law required pharmaceutical manufacturers to give state Medicaid programs the best price on their drug products as a condition of program participation. Medicaid had been paying near retail prices for outpatient prescription drugs while other larger purchasers had received discounts. It was expected that by creating a structure through which Medicaid could negotiate drug price discounts with manufacturers, the rate of growth in federal and state spending on prescription drugs would moderate.; The question to be addressed is: did government intervention through the Medicaid best price law induce pharmaceutical companies to change their pricing policies, behavior, and structure with regard to certain Medicaid outpatient covered drugs immediately prior to and after the law's enactment; and, if so, did different types of firms behave in different ways?; The research examined both quantitative and qualitative evidence through a combination of gathering pricing information from interviews, existing sources and analysis of existing survey data and studies, and comparison of the pre- and post-OBRA 90 market and pricing behavior by pharmaceutical companies. Interviews were conducted with influential policymaking participants who have knowledge about the Medicaid best price law and its development as well as the pharmaceutical industry. A literature review was conducted with specific focus on relevant documents from this period of policy development.; The manufacturers of the top 20 drugs prescribed for use in the outpatient setting (oral solids) by volume from the first quarter of 1991 through the first quarter of 1993 were identified. From that set, the companies were classified as either “deep discounters” or “single pricers” based on their pricing practices and according to information secured through interviews and the literature review. Detailed analysis using drug price change data from a 1992 General Accounting Office (GAO) study was conducted to examine the pricing behavior of these two types of drug companies at the manufacturers level, comparing the change in prices to the change in PPI and PPI-Rx from 1985–1991 with specific focus on 1990, the year the Medicaid best price law was enacted.; The results of the analysis suggest that the enactment of the Medicaid best price law may have caused some pharmaceutical manufacturers to raise prices on some of their pharmaceutical products at a rate more significant than trends projected forward. List prices to wholesalers increased at a rate above the percentage changes for both PPI and PPI-Rx. The type of firm was found not to be significant to the trend of price increases.; The research also suggests that as a result of the best price program, pharmaceutical manufacturers raised prices and reduced discounts they offered to private purchasers like hospital group purchasing organizations (GPOs) that negotiate on behalf of providers of Medicaid services. Other evidence indicates that prices also increased for such other large-volume buyers like the Department of Veterans Affairs (DVA), Department of Defense (DOD), and the Public Health Service (PHS).