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In recent years, drug manufacturers and private payers have expressed interest in novel pricing models that more closely link a drug’s price to its value. Indication-based pricing, outcome-based pricing, drug licenses, and drug mortgages have all been discussed as alternatives to paying strictly for volume. Manufacturers and payers have complained, however, that Medicaid’s “best-price rule” inhibits their ability to enter into these newpricing arrangements. This article examines the best-price rule and assesses to what extent, if any, it might frustrate the goal of paying for value. We conclude that the best-price rule is not as serious a problem as it is sometimes made out to be but that it is also not simply a convenient excuse for refusing to try something new. The law here is complex, and moving to a pay-for-value model for drugs will require close coordination among manufacturers, payers, and regulators.


This is a pre-publication. The publisher's version may be found as Bagley, Nicholas, co-author. "Innovative Contracting for Pharmaceuticals and Medicaid's Best-Price Rule." Rachel Sachs and Darius N. Lakdawalla, co-authors. J. Health Pol. Pol'y & L. 43, no. 1 (2018): 5-18. DOI: