Medicaid regulations require that drug companies charge the state-federal health program for the poor the lowest or “best” price that they negotiate with any other buyer. In theory, the best-price requirement protects taxpayers from price-gouging. With the federal and state governments spending about $20 billion annually on drugs for Medicaid patients, such protection seems valuable.
In practice, the Medicaid Drug Rebate Program contributes significantly to a dysfunctional pricing process that undermines competition and inflates drug costs for those insured through employers, the individual market and government employee health benefit programs. It also threatens to stifle broad access to many new, innovative therapies.
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