Drug pricing experiment offers Oklahoma rebate if drugs don't work

Aug 19, 2018

This summer, Oklahoma’s Medicaid program was approved for a value-based purchasing program -- a first-in-the-nation drug pricing experiment that hopes to incentivize drug companies to stand behind their product.

Jackie Fortier reports on health policy for StateImpact Oklahoma, a collaboration of NPR member stations in Oklahoma that focuses on how government policy affects people’s lives. Fortier spoke to us this August on "Take Care," right before the new drug-pricing model began. She said though there are plenty of skeptics, the new program might do some good for the state and provide an example for other states to follow.

In the value-based purchasing program, the state and pharmaceutical companies agree to set a payment of a medication. If that medication works as advertised, then the pharmaceutical company receives the full payment, but if the drug is not as effective as promised, the company only receives a fraction of the payment.

“It’s a rebate program,” Fortier explained. “Pharmaceutical companies can participate if they want to, but obviously, they need to for the program to work.”

There is a lot of incentive for companies to volunteer for the program, Fortier said, including a reputation that ultimately means increased business.

“A product that is signed for what the state is calling the Medicaid State Supplemental Rebate Agreement will have a preferred status,” Fortier said.

In other words, an effective product produced under this system will be put on a preferred drug list, which will help the company sell more of it in the long run. The concept is part of the Trump administration’s plan to lower drug prices, and current projections estimate a savings of $2 million for the state under this program.

Pharmacy management consultants are going to track outcomes of this program and facilitate meetings with drug manufacturers, helping to agree on the populations for which the benchmarks of quality will be measured.

Fortier said a possible pitfall to the program is the best price requirement, the federal term for the best price at which a company sells their drugs to commercial entities. Medicaid is guaranteed the best price after the rebate.

“Some interpret that to maybe apply to value-based deals,” Fortier said. “That means that if the drug didn’t work too well and the state paid, let’s say, 10 percent of the original price, then every other Medicaid program could get the drug for that rock-bottom price.”

The document that was approved by the state, however, Fortier says that the value-based deals do not affect the best price. So, Oklahoma will benefit, but it will not affect drug prices in any other state.

The program was implemented at the beginning of August.