Why States Should Not Copy Medicare Pricing
As prescription drug costs continue to strain patients and health systems alike, state policymakers are under increasing pressure to act. Many are looking to Medicare’s Maximum Fair Price (MFP) framework as a potential model. However, a newly released issue paper from the Rare Access Action Project (RAAP) strongly cautions against this approach — and the reasons go far deeper than simple policy preference.
RAAP’s Warning to State Policymakers
RAAP’s latest publication is the second in a two-part series of policy papers focused on Prescription Drug Affordability Boards (PDABs). The paper concludes clearly: Medicare’s MFP is not a transferable model for state-level drug pricing efforts. Attempting to borrow the concept for state PDABs would likely create serious legal conflicts, significant market distortions, and meaningful patient access challenges — outcomes that mirror the problems associated with any upper payment limit (UPL).
The paper was researched and written by Jennifer Snow of Apteka Policy, bringing rigorous analytical depth to a question that many state legislatures are actively debating.
How Medicare’s MFP Actually Works
While Medicare’s MFP is frequently described as a “negotiated” fair price, RAAP’s analysis reveals that it functions effectively only within Medicare’s unique statutory structure. Under the Inflation Reduction Act (IRA), the Centers for Medicare & Medicaid Services (CMS) selects a limited number of drugs each year and sets a Maximum Fair Price backed by powerful federal enforcement mechanisms. These mechanisms include civil monetary penalties and excise tax exposure for non-compliant manufacturers. Critically, manufacturers must either comply with the MFP or risk losing access to the entire Medicare market.
This combination of national scope and compulsory participation is what gives Medicare its extraordinary pricing leverage — and it is leverage that no state government can replicate.
Why States Cannot Replicate Federal Leverage
Michael Eging, Executive Director of RAAP, put it plainly: “Medicare’s leverage comes from its national scope and compulsory participation. States do not have that authority. When you remove MFP from the federal framework that gives it power, what remains is not negotiation — it’s a reimbursement ceiling. And reimbursement ceilings don’t lower acquisition costs; they shift financial pressure downstream onto pharmacists, providers, and patients.”
This distinction is critical and frequently misunderstood in state policy debates.
Structural Barriers States Face
RAAP’s paper identifies several key structural barriers that prevent states from successfully replicating Medicare’s pricing model.
Limited State Authority is the first major obstacle. Federal ERISA preemption significantly restricts state oversight over large segments of the commercial insurance market, leaving states with far less reach than federal programs.
Reimbursement vs. Acquisition Pricing represents the second and perhaps most consequential barrier. Medicare’s MFP directly changes the acquisition price that manufacturers must accept within the program. By contrast, PDAB-imposed UPLs typically cap only what insurers may reimburse — without changing what manufacturers actually charge. When reimbursement rates fall below acquisition costs, pharmacies, hospitals, and physicians are forced to absorb the financial difference or reconsider whether to stock or administer certain therapies at all.
As Jennifer Snow’s paper notes, “The downstream effects can result in narrower networks, site-of-care shifts, increased prior authorization requirements, and delays in patient access.” These are not minor inconveniences — they represent real barriers to care for the patients these policies are intended to help.
What States Should Do Instead
Rather than attempting to replicate a federal pricing mechanism that depends entirely on federal leverage, RAAP urges states to pursue alternative affordability strategies. The focus should be on directly addressing patient cost exposure — through initiatives such as copay assistance reforms, transparent cost-sharing structures, and pharmacy reimbursement adequacy — without disrupting existing care delivery networks.
Effective drug affordability policy must account for the full supply chain. When financial pressure is shifted without reducing the underlying cost, patients and providers ultimately bear the burden.
The Bottom Line for State Legislators
The appeal of Medicare’s MFP as a state-level model is understandable — it appears to offer a clear, structured pathway to lower drug prices. But the structural realities make direct replication not only ineffective but potentially harmful. States that move forward without understanding these limitations risk undermining access to the very medications their constituents need most.
RAAP’s paper serves as a timely and essential resource for any state policymaker currently evaluating PDAB-related legislation or upper payment limit proposals.
