Medicaid is a lifeline that helps low-income, out-of-work, and disabled Americans tap into the country’s innovative healthcare system. But now—under the guise of lowering costs—the Biden administration is threatening to handicap the program by disrupting the lifesaving treatments, therapies, and vaccines that are made available to Medicaid patients.
The White House should rethink its strategy so that disadvantaged Americans don’t get the short end of the stick.
What’s happening? The Department of Health and Human Services (HHS) is proposing a new policy that would make providing pharmaceuticals to the Medicaid market less financially feasible. Beyond the most immediate consequences, the policy also threatens the development of new medication that would primarily benefit low-income communities.
While Medicaid is a government-sponsored healthcare program, it still relies on doctors, hospitals, and drugmakers operating within the private market to provide the services and medicine needed to treat patients. That’s why a carefully balanced incentive system to participate with the Medicaid program is critical, or else the whole program falls apart.
The benefit for a hospital, doctor, or drugmaker to enter the Medicaid market is simple. The Medicaid program covers an estimated 84 million Americans, which means participating parties have access to that huge potential customer base. Medicaid patients may not directly pay for medical treatments, but Uncle Sam is sure footing the bill.
But there is a catch. Companies are required to provide products and services to Medicaid at a fraction of the market price. It’s the trade-off companies accept to access a bigger pool of patients.
For medicine, the payment arrangement is largely governed by the Medicaid Drug Rebate Program—which was created by Congress more than 30 years ago. In short, it requires drug manufacturers to offer a certain level of discount alongside their products to guarantee that Medicaid pays the best available price. It’s basically a backstop to prevent taxpayers—who fund the program—from getting stiffed.
This is where the Biden administration’s funny business comes in.
Rather than the cost point for medicine obtained through Medicaid reflecting the lowest price a drug is offered at in the private market, they want the price to include combined discounts from each step of the supply chain. It’s a follow-the-pill formula that upends years of precedent. In practice, the change would require drugmakers to provide pharmaceuticals to Medicaid at an even steeper discount than they already are.
The unintended consequences would be significant. The incentive structure for manufacturers to participate in the Medicaid program would be thrown off balance—with the cons outweighing the benefits of being involved for some companies. For Medicaid patients that means fewer available treatments, therapies, and vaccines.
Medicaid has already run into a similar healthcare supply quagmire—a cautionary tale the Biden administration seems to be ignoring.
In general, healthcare providers are less likely to accept Medicaid patients. Why? As previously touched on, the government-sponsored insurance has a lower payout for services compared to Medicare or private insurance. Additionally, billing the program is an administrative nightmare. That means Medicaid patients often have a difficult time finding doctors that accept their coverage.
Beyond harming Medicaid patients, Biden’s proposal could also increase costs for everyone else. By forcing drug manufacturers to accept excessively low-price points in return for supplying Medicaid, they would likely recoup losses by increasing prices elsewhere. This is a common practice in hospital care and is known as "cost shifting" which has led to inflated and unaffordable care to millions of traditionally insured Americans. Thus, arguing for appropriately priced medications in Medicaid is not arguing for more expensive drugs but rather rationally priced medications across the board.
Currently, hundreds of drug manufacturers voluntarily participate in the Medicaid market—helping to provide discounted medicine to the populations that need it most. But the White House’s proposed rule threatens to send them running to the exit. The Biden administration should walk it back.
Chad Savage, M.D. is a policy fellow at the Docs 4 Patient Care Foundation, the founder of YourChoice Direct Care in Brighton, MI, and a partner of the Job Creators Network Foundation.
