September 1, 2026
This is a lightly edited and condensed description of the podcast episode. It is intended to summarize the substance of the discussion but it is not a verbatim transcription. Language may have been edited, reorganized, or summarized for clarity and readability. For exact wording and the full context of the discussion, please refer to the original audio recording.
Welcome to Perspectives, a signature podcast series from The Leerink Center for Pharmacoeconomics. Hosted by Dr. Mel Whittington, a health economist and Head of the Center for Pharmacoeconomics, we will be hearing from individuals across the industry to better understand and appreciate the societal impact of healthcare innovations.
Mel Whittington: Welcome back, everyone. Today’s episode is all about the different net prices that a branded drug has in the U.S. market. We’re going deep into the different types of prices a branded drug has and how each one is established. We’re not just talking list versus net price here — we’re going to get into WAC, AMP, best price, 340B, ASP, and MFP. I probably missed a few. To explain all of this, our guest is one of the very few people in the world who truly understands all of these different branded drug prices, their interconnectedness, and how they’re established and used in the major U.S. insurance markets.
Our guest today is Dr. Inma Hernandez, who is currently a senior advisor for drug prices at the Centers for Medicare and Medicaid Services (CMS), where she oversees the federal pharmaceutical policy portfolio. Dr. Hernandez, thank you so much for coming on the podcast.
Inma Hernandez: Thank you for having me, Mel. Please call me Inma. And I don’t know that I understand everything, so we’ll see.
Mel Whittington: Well, if you don’t, then none of us do. Before we get into it, I want to start with a few disclaimers to level-set this conversation for the audience.
First: this topic is extremely complex, so listeners might want to listen to this a few times or in different chunks. Although this is complex and will include a lot of acronyms, anyone who does anything with branded drug pricing should be familiar with this content.
Second: Inma created an excellent figure showing all of the interconnections we’re going to talk about today, and we’ll link that in the show notes. Feel free to check it out, print it, and use it as a reference.
Third: although this episode will go very deep into the U.S. branded drug pricing framework, there are still many components of U.S. branded drug pricing we won’t be able to cover. Even this complex conversation is a simplified depiction of selected U.S. branded drug pricing relationships.
Finally: This is not intended to be legal, regulatory, reimbursement, or policy advice, and does not represent — and should not be interpreted as representing — the views, positions, guidance, or policy of CMS, the U.S. Department of Health and Human Services, or any other government agency.
With that out of the way, I want to structure this episode into four parts. Part one: the different insurance markets in the U.S. Part two: how the net price to the manufacturer is established in each of those insurance markets. Part three: we’ll layer in 340B. Part four: we’ll layer in the Inflation Reduction Act (IRA).
Part One: The Different Insurance Markets in the United States
Mel Whittington: The U.S. doesn’t have a single-payer health care system — it includes multiple types of payers or insurers. Inma, can you give us an overview of the major insurance markets for branded drugs in the U.S.?
Inma Hernandez: Happily. One note before I get started: today’s conversation will focus on branded drugs. Generics have very different pricing dynamics, so keep that in mind. Second, I’m going to try my best to avoid acronyms, or at least define them at first use — I know the topic can get quite wonky and those of us in the policy community use acronyms frequently.
I’ll start with the largest markets in terms of branded drugs — the four markets in the figure Mel described. This isn’t the complete picture of the U.S. market, since there are smaller markets too, but today’s focus is the bigger picture: the main items someone should understand to have a good grasp of the branded drug market.
The first is the commercial market — a mix of employer-sponsored insurance (insurance people get through their job) and insurance people buy themselves on the private market or through the health insurance exchanges established by the Affordable Care Act (ACA), often called Obamacare. Employer-sponsored insurance is financed through a combination of premiums paid by both employer and employee. The ACA exchanges are financed through a combination of premiums and taxes. The commercial market covers around 190 million people — more than half, around 55%, of the U.S. population. In terms of net drug spending realized by manufacturers, commercial accounts for around 36% of nationwide drug spending. I’ll be citing 2024 figures throughout — this is simply the most recent data I was able to triangulate, and I don’t want to overload you with numbers, but it helps to have a sense of scale.
Then there’s Medicaid, the program that provides coverage for low-income individuals, including specific groups such as children, individuals with disabilities, and pregnant women. It covers around 77 million people — roughly 22% of the population (numbers change year to year). It’s financed by a combination of federal and state taxes but administered by the states. There are important federal regulations but because the program is administered at the state level, there are meaningful differences in how states approach the benefit, including drug coverage. In terms of drug spending, Medicaid is actually a small share of the market — around 7% of net spending. That’s disproportionate to its 22% share of the population, for two reasons: first, groups like children use fewer drugs because they’re healthier and younger; second, as we’ll discuss, Medicaid has some of the lowest drug prices in the U.S.
The largest remaining market is Medicare. Medicare covers individuals over 65 and those with disabilities or end-stage renal disease — around 20% of the population. It’s financed through a combination of payroll taxes, general taxes, and beneficiary premiums, and it’s administered federally, so unlike Medicaid there aren’t major differences across states.
An interesting feature of the Medicare drug benefit is that it’s split by where drugs are provided to patients. Drugs administered in a clinic — for example, chemotherapy — are called provider-administered drugs, or Part B drugs, financed through the Part B benefit. Drugs patients get from a pharmacy are Part D drugs.
Although Part D is financed with public funds, it’s always administered by private plans (Part D plans). This is unlike Part B, where individuals may have Medicare fee-for-service or enroll in a Medicare Advantage plan administered by a private insurer. Right now, spending is larger in Part D, representing more drug volume — around $180 billion, a little more than twice Part B spending. That said, the highest spending growth has been in Part B. Combined, Medicare spending exceeds $250 billion, roughly half of what the U.S. spends on drugs overall.
There are other payers too, like the Veterans Health Administration, but today we’re focused on the large markets. Summing all these figures, total U.S. net drug spending in 2024 was around half a trillion dollars. The difference between net and gross spending is substantial — on the order of 40%.
Finally, because some spending is publicly financed, it’s also more regulated. The commercial market is less regulated, though — as we’ll learn — some prices paid in the commercial market actually affect what’s paid in Medicaid and Medicare.
Mel Whittington: Understood. Let me try to summarize, and then you can tell me everything I got wrong.
Essentially, we have a few major insurance markets in the U.S.: commercial insurance, Medicaid, and Medicare. Within Medicare, there are two parts — Part B, where the drug is administered by a provider, and Part D, where the drug is dispensed by a pharmacy. The share of the total population covered differs from the share of total drug spending: Medicare is around 50% of total drug spending, Medicaid around 10% or a little less, and commercial around 40%.
Part Two: Net Price by Market
Mel Whittington: The main takeaway I want for the audience from this episode is how the net price realized by the innovator is established in each market, and how it varies. I think this audience is aware that list price doesn’t represent what the innovator actually gets — that’s the net price. Let’s get into those nuances, while trying not to layer in too much 340B or IRA yet — we’ll get there. Let’s start with the commercial market. How is the net price to the innovator established there?
Inma Hernandez: I appreciate you specifying “net price realized by the innovator”. The net price realized by the innovator (the manufacturer) is not necessarily the net price paid by the payer/insurer. There are discounts that go to other entities in the supply chain, creating a disconnect between the two. So today we’re speaking from the manufacturer’s perspective, which won’t always align with the payer’s perspective.
In the private market, payers and insurers negotiate discounts with manufacturers in exchange for coverage and formulary placement. Insurers and manufacturers — especially for drugs in competitive classes with several brands — negotiate discounts in exchange for coverage and preferred-tier placement. These discounts differ vastly across therapeutic classes. In classes like oncology, discounts tend to be small because those drugs often have a very specific therapeutic profile with no substitute for that indication. But in classes with several interchangeable brands, discounts can be quite large.
Importantly, these discounts are operationalized as rebates — refunds after the transaction — rather than an upfront price discount. That’s true throughout most of the pharmaceutical supply chain. The exception is the 340B program, which we’ll discuss later.
Mel Whittington: So, in my attempt to summarize: the drug manufacturer sells the drug to a wholesaler at the Wholesale Acquisition Cost (WAC) — also called the gross price or list price. The manufacturer then pays rebates to the payer for coverage and preferred formulary placement. The net price realized by the innovator is the WAC/gross/list price minus those rebates.
Inma Hernandez: That’s correct — this one is simple.
Mel Whittington: Simple because we have you. Where do pharmacy benefit managers (PBMs) come into this commercial landscape?
Inma Hernandez: For drugs dispensed at the pharmacy, insurers can subcontract administration of the pharmacy benefit to PBMs, which aggregate lives across payers to negotiate discounts on their behalf. PBMs serve as a vendor to insurers, and different insurers within the same PBM can still have different preferences — some may want to cover a drug, some may require step therapy (failing another treatment first). So formularies and prices can differ across plans managed by the same PBM. But PBMs are the ones more directly negotiating with manufacturers.
Mel Whittington: Got it. So that’s the commercial marketplace: WAC minus rebates equals the net price realized by the innovator. Now let’s move to Medicaid — how is the net price to the innovator established there?
Inma Hernandez: Medicaid has a statutory program set by federal law. Federal law doesn’t set a specific price, but rather the formula manufacturers and Medicaid must follow to derive the rebates manufacturers owe state Medicaid programs. Interestingly, the formula ties Medicaid rebates to the rebates offered in the commercial market. Many other countries directly regulate price; here, the Medicaid program instead ties the rebate to commercial prices.
Before I forget: on top of the mandatory statutory rebate, states can also negotiate additional “supplemental rebates.” But let’s start with the statutory program, since it’s already complex on its own — and this is where we introduce our first “alphabet soup” term.
Medicaid rebates are based on the Average Manufacturer Price (AMP) — the average price paid by wholesalers and pharmacies to manufacturers. I think of AMP as a gross price, similar to list price, with one wonky exception: for what we call 5i drugs — drugs for inhalation, infusion, instillation, implantation, or injection, with a large share of sales dispensed through non-retail pharmacies (i.e., mail-order, institutional pharmacies ) — AMP is net of rebates, making it more like a net price. But in general, think of AMP as a proxy for list price.
There are two components to the Medicaid statutory rebate: a base rebate and an inflation rebate. The inflation rebate penalizes price increases above inflation if a manufacturer raises list price faster than inflation, that difference must be refunded to Medicaid.
The base rebate is calculated as the greater of two factors: (1) 23% of AMP, or (2) the difference between AMP and the best price — the best discount the manufacturer offers in the commercial market. This is precisely what links Medicaid rebates to commercial rebate offerings.
To simplify: for drugs in low-competition classes (like oncology), the Medicaid rebate is essentially just the inflation rebate plus the 23%, since commercial rebates are typically below that threshold. For drugs in competitive therapeutic classes, where manufacturers compete heavily for formulary placement, commercial rebates often exceed 23% so Medicaid gets the inflation rebate plus the best price discount.
Mel Whittington: That’s where best price comes in.
Inma Hernandez: Exactly — that’s the best price concept. One note, since this has changed recently: before 2024, there was an “AMP cap”. If the rebate (after adding inflation and base rebates) exceeded the list price (AMP), the rebate was capped at the list price (AMP), meaning the state paid zero. That cap was removed in January 2024, so now there are cases where the rebate can exceed the list price — meaning Medicaid can have negative net prices. I like to tell Europeans that our pricing system is so complex we actually have negative net prices.
Mel Whittington: Interesting. So, is it fair to say the net price realized by the manufacturer from Medicaid is the WAC/gross/list price minus a rebate amount, where that rebate is a function of AMP (roughly WAC, except for 5i drugs), the greater of 23% of AMP or best price (depending on the size of commercial rebates), the inflation rebate, and any supplemental rebate negotiated by the state?
Inma Hernandez: Yes. It’s not surprising Medicaid gets some of the lowest net prices in the country — first, because it captures the best discount given in the commercial market, and second, because of the inflation rebate on top.
One note on supplemental rebates: they’re often not large, and I don’t think that’s surprising. First, they build on top of an already robust statutory rebate. Second, manufacturers and states typically negotiate supplemental rebates in classes with competition but those are the same classes where commercial rebates are already high, meaning the Medicaid net price is already quite low. When the Medicaid net is already so low, the incremental value of buying preferred formulary placement through a supplemental rebate is small.
Mel Whittington: And it shows how complex and interconnected this is. The commercial landscape spills over into Medicaid through best price. Okay, now let’s switch to Medicare, starting with Part B, where the drug is administered by a provider. How is that net price established?
Inma Hernandez: In Medicare Part B fee-for-service, we follow the “buy-and-bill” model: the provider buys the drug from the manufacturer, and Medicare then pays the provider. That payment is based on the Average Sales Price (ASP). Unlike AMP, ASP is more of a net price — it’s also an average, but in this case most discounts are already included, and importantly, not just discounts to payers but also provider discounts. ASP serves as the base payment for Part B drugs in fee-for-service.
One recent addition, from the Inflation Reduction Act, is inflation rebates: if a drug’s price has increased above inflation since 2021, that difference must be refunded by the manufacturer back to Medicare.
Mel Whittington: So that’s more straightforward than Medicaid. The manufacturer’s net price from Part B is ASP — a net price, unlike AMP — minus the inflation rebate. Rebates here aren’t directly negotiated by Medicare but spillover from the commercial market via the inflation rebate mechanism. Now, Part D — where the drug is dispensed by the pharmacy. How is the net price established there?
Inma Hernandez: Part D is a mix of both worlds — it has negotiated discounts, since it’s administered by private plans building formularies (the same type of plans that administer commercial coverage, so they get manufacturer discounts too), and statutory/mandated discounts, since it’s a public program.
The regulatory term for negotiated Part D rebates is direct and indirect remuneration (DIR). DIR is essentially the same as rebates, with the caveat that some DIR may include pharmacy rebates, though the majority originates from manufacturers.
There are two types of statutory discounts. First, inflation rebates, also from the IRA — same concept as Part B: if a manufacturer raises price above inflation, the difference is refunded to Medicare. Second, the Manufacturer Discount Program (MDP), which replaced the old “coverage gap discount” from when Part D first launched. Part D originally had a “donut hole” — a phase of the benefit with no coverage — which the ACA closed by implementing manufacturer discounts to help co-finance the closure. As part of the IRA’s redesign of the Part D benefit, since there’s no more coverage gap, that discount took the form of the MDP: 0% in the deductible phase, 10% in the initial phase, and 20% in the catastrophic phase.
Mel Whittington: So it interacts with the plan benefit design.
Inma Hernandez: Correct. And importantly for this audience, that 20% is much higher than what manufacturers of drugs in “protected classes” used to pay. Very expensive specialty drugs with a unique therapeutic profile, where payers and plans couldn’t negotiate much of a discount, previously had essentially no discount. But since most utilization of those drugs is concentrated in the catastrophic phase, they now face a 20% discount that didn’t exist before — a sizable change.
Mel Whittington: So in Part D, it’s a little more complex, partly because it’s managed by private plans. But it starts at WAC/list price, with various rebates and discounts subtracted, including the inflation rebate from the IRA. Does that capture it?
Inma Hernandez: Yes — one thing worth noting is that the magnitude of the MDP changes by phase and is much larger than the inflation rebate (though we’ve had pretty high inflation since 2021, so that may shift over time). The MDP discount can be substantial.
Part Three: 340B
Mel Whittington: Now let’s talk about 340B. Inma, can you give us a high-level overview before we get into the pricing nuances?
Inma Hernandez: 340B is a federal discount program. A bit of history: before the Medicaid Drug Rebate Program existed, manufacturers often gave large discounts to safety-net providers. But once the Medicaid Drug Rebate Program introduced the concept of best price, manufacturers started holding back on those discounts — because a large discount to a safety-net provider would trigger best price, requiring it to be extended to all Medicaid programs. Congress created the 340B program to address this unintended consequence.
As a condition of having their drugs covered under Medicare Part B and Medicaid, manufacturers must sell outpatient drugs at a deep, formula-regulated discount to safety-net providers — often called “340B covered entities,” which include federal grantees and nonprofit hospitals serving a disproportionate share of Medicaid or low-income patients (“disproportionate share hospitals,” or DSH hospitals). Unlike Medicaid or Medicare, the 340B discount doesn’t vary by payer — it’s based on the entity dispensing the drug, which makes it quite unique.
Mel Whittington: Let me try to summarize: with 340B, a covered entity — let’s say a nonprofit hospital — buys the drug at a deeply discounted price, the “340B price.” How is that price determined?
Inma Hernandez: It’s actually the same formula as the Medicaid Drug Rebate Program with one caveat: there’s a “penny price” floor. In Medicaid, the rebate can exceed list price, producing a negative net price. In 340B, the price can’t go negative — the minimum is one cent. That’s where the term “penny price drugs” comes from — drugs that hit this floor, typically those with high rebates in competitive classes.
Mel Whittington: So the 340B price is similar to the Medicaid price — AMP minus the Medicaid rebate — but with a floor of one cent, whereas Medicaid can go negative.
Inma Hernandez: Right. And one thing I should add: because it relies on the best price construct, a discount given in the commercial market spills over not just to Medicaid but to 340B as well — best price has important implications across markets, not just Medicaid.
Mel Whittington: So a steep discount offered to one commercial insurer doesn’t just affect that insurer — it can spill over into the entire Medicaid and 340B markets. You touched on this earlier, but I want to clarify: does 340B interact with the differential rebates across markets?
Inma Hernandez: 340B is unique in that it’s operationalized as an upfront discount, not a rebate — the pharmacy within the covered entity buys the drug from the wholesaler directly at the 340B price, rather than paying full price and later receiving a rebate.
Mel Whittington: So upfront, not later as a rebate.
Inma Hernandez: Correct. The covered entity’s pharmacy buys at the discounted price but can still bill and get reimbursed by the insurer at the normal rate. Say a patient at a 340B covered entity has Medicare, and the drug’s list price is $1,000 while the 340B price is $200. The pharmacy is typically reimbursed close to list price, so it may buy the drug for $200 but get reimbursed $1,000 — keeping that spread, which can be quite large. That’s part of where the controversy around 340B comes from — the spread between the 340B acquisition price and insurer reimbursement can be substantial.
Mel Whittington: Another reason the net price to the innovator differs from the net price to the payer.
Inma Hernandez: Exactly right.
Mel Whittington: Given the similarity between the 340B and Medicaid formulas, let’s go through each major market again with 340B layered in. Starting with Medicaid — is the net price realized by the manufacturer the 340B price plus an additional Medicaid rebate? Could there be a duplicate discount?
Inma Hernandez: There’s a statutory prohibition on duplicate discounts — a unit subject to 340B cannot also be subject to a Medicaid rebate, and vice versa. When states prepare invoices for Medicaid rebates, they’re supposed to exclude 340B units. The statute is clear; the complexity comes from operational and data-tracking challenges — including differences between Medicaid fee-for-service and managed care — in identifying which claims are 340B versus Medicaid.
Mel Whittington: Got it — no duplicate discounts in the Medicaid market, at least not by design. Now, the commercial market — is the net price to the manufacturer there simply the 340B price?
Inma Hernandez: Yes. That’s why, in the figure, we show net price separately for 340B units versus non-340B units across Medicare Part B, Part D, and commercial — they can be substantially different. For a unit dispensed by a covered entity under 340B, the manufacturer earns the 340B price at which the pharmacy purchased the drug. The commercial insurer likely reimburses the pharmacy at the regular rate, and the covered entity’s pharmacy keeps the spread.
One thing that’s more of a contracting issue than a policy issue is whether the manufacturer still owes a rebate to the insurer on that 340B claim — this depends entirely on contract terms. A manufacturer might argue: “I already gave a steep discount to the 340B entity, so I won’t also pay the rebate I negotiated for preferred formulary status.” But the payer might respond that it doesn’t know which claims are 340B and is still paying full price for that unit. In practice, some contracts include “rebate caps” — for example, the manufacturer won’t pay rebates on a percent of units subject to 340B, but beyond that threshold, the manufacturer pays both the rebate and the 340B discount, which adds up quickly.
Mel Whittington: So there’s a world in the commercial market where the net price to the manufacturer is the 340B price minus rebates offered to the commercial insurer.
Inma Hernandez: It could be — and again, this isn’t a policy decision set by statute; it’s up to commercial practices between manufacturers and payers. Also, terminology note: you might informally call that scenario a “duplicate discount” — paying two discounts on one unit — but that’s different from the statutory prohibition on duplicate discounts, which only applies to Medicaid and 340B specifically.
Mel Whittington: So: no duplicate discounts in Medicaid; in the commercial market, there could be overlapping discounts — a 340B discount plus additional rebates.
Inma Hernandez: Right — a wonky distinction, but an important one, since “duplicate” means different things in casual use versus policy terms.
Mel Whittington: It’s a wonky topic but an important one. Before we move on — what about Medicare Part B and Part D under 340B? Is the net price to the manufacturer just the 340B price?
Inma Hernandez: For Part D, it’s the 340B price, but the Manufacturer Discount Program (MDP) is still owed — 0% deductible phase, 10% initial phase, 20% catastrophic phase.
Mel Whittington: So the MDP layers on top of the 340B price in Part D.
Inma Hernandez: Correct. And unlike the MDP, the IRA specifically exempted 340B units from inflation rebates — so 340B units don’t pay inflation rebates but do pay the MDP.
Mel Whittington: Got it. I appreciate how your figure makes all of this easier to track visually — we’ll definitely link it in the show notes. Before we move to the Inflation Reduction Act — my biggest takeaway so far is just how interconnected all of this is. We’ve talked about the relationship between commercial discounts and the Medicaid price, and between Medicaid and 340B. Are there other major interactions we should keep in mind?
Inma Hernandez: The web of relationships is complex, and there’s no need to memorize exactly how each price metric is constructed — many of us regularly have to check the statute to refresh our memory. That’s what the figure is for. I’ll reiterate: best price is the key construct linking the commercial market to Medicaid and 340B. One somewhat paradoxical point: commercial market rebates do count toward best price, but Part D rebates negotiated between plans and manufacturers do not count toward best price.
Mel Whittington: Interesting — even though Part D is managed by private plans, it’s not technically “commercial” for best price purposes.
Inma Hernandez: Right — and we’ll see shortly that the Medicare-negotiated price does count toward best price. Part D rebates don’t count, but the Medicare-negotiated price does, and commercial rebates do.
Mel Whittington: The key takeaway is that when you’re thinking about one market, you have to think about how it connects to others.
Part Four: The Inflation Reduction Act
Mel Whittington: Let’s switch to the IRA and how it adds another layer to all of this. Can you give a high-level overview of its main provisions? We’ve already touched on inflation rebates.
Inma Hernandez: One provision is the redesign of the Part D benefit. There’s now a maximum out-of-pocket cap for seniors, and an important change in how cost liability is shared between plans and the federal government. As part of that restructuring, the old coverage gap discount was replaced by the Manufacturer Discount Program, which especially affects pricing for drugs with high utilization in the catastrophic phase.
Second, inflation rebates were introduced for both Part B and Part D. These are paid on non-340B units — CMS excludes 340B claims when calculating inflation rebates.
Third — and perhaps the most well-known provision — is Medicare’s authority to negotiate drug prices. Before the IRA, Medicare wasn’t allowed to interfere in price negotiations between insurers and manufacturers. The IRA waived that restriction, giving the executive branch authority to negotiate directly with manufacturers on drugs that have been on the market long enough. The negotiated price is called the Maximum Fair Price (MFP).
Mel Whittington: Could you give us an overview of which drugs are eligible for negotiation?
Inma Hernandez: We’re looking at single-source brand-name drugs and biologics — no generic or biosimilar competition. CMS selects drugs based on gross, not net, spend. A small-molecule drug must be on the market for seven years to be eligible for selection, and biologics for eleven years — measured at the time of selection. The negotiated price takes effect two years after selection, so effectively it’s a nine-year period for small molecules and thirteen years for biologics before the negotiated price applies.
Some categories, like plasma-derived drugs, are excluded from negotiation, and there are specific provisions for orphan drugs (which differ depending on whether all indications are orphan indications). In the first round, CMS negotiated 10 drugs, effective for pricing in 2026; 15 drugs for 2027; and CMS is currently negotiating another 15 drugs for 2028. Starting the following year, 20 drugs will be negotiated annually.
Mel Whittington: So once a drug has an MFP in effect, how does that change the manufacturer’s net price in Part D and Part B?
Inma Hernandez: A few things: first, when a drug is subject to an MFP, the manufacturer no longer has to pay the MDP (the 10%/20% discount) — that discount is instead absorbed by the federal government. This is important for researchers assessing the impact of negotiation on net spend — you need to subtract the MDP the manufacturer no longer pays to properly measure the effect of negotiation.
Also, for negotiated drugs, beneficiary cost-sharing is based on the negotiated price, not the list price — important for beneficiary access. And there’s a change regarding 340B: the statute requires manufacturers to make available to covered entities the lower of the 340B price or the MFP — there’s no stacking of the Medicare-negotiated discount on top of the 340B discount; only the lower of the two applies.
Mel Whittington: Got it. So in Part D, the MFP displaces the MDP. What about Part B?
Inma Hernandez: The same “lower of” rule applies for 340B. There’s no MDP in Part B, so that’s not a factor there. Medicare fee-for-service will pay providers based on the MFP instead of ASP — previously providers were paid 106% of ASP, and now it will be 106% of the MFP, presumably a lower number, changing the economics for providers as well.
Mel Whittington: So in Part B, MFP essentially swaps in for ASP. Now — how might the MFP impact the commercial and Medicaid markets, if at all?
Inma Hernandez: As previewed, the MFP factors into best price — so as a manufacturer negotiates with CMS, they’re also tracking whether the MFP might reset best price, which would spill over into both Medicaid and 340B.
Mel Whittington: So if the MFP is lower than the best price previously established in the commercial market, that spills over to Medicaid and 340B.
Inma Hernandez: Right — it’s one of the newer but important interactions to think about, especially combined with the fact that, since 2024, the cap preventing Medicaid net price from going negative was removed. So there’s meaningful change happening in Medicaid net pricing at the same time the MFP is being layered in — a lot for manufacturers to track.
Mel Whittington: One more interconnected piece before we close: earlier we discussed inflation rebates in Part B and D. Is there any interaction between inflation rebates and the MFP?
Inma Hernandez: Yes — one interaction that hasn’t fully played out yet: while a drug is subject to the MFP, the inflation rebate continues to apply. But if a biosimilar or generic enters the market and the drug is no longer eligible for the MFP, the inflation rebate benchmark is reset — it will track the MFP going forward rather than the original 2021/launch price. I suspect we’ll be discussing this more as drugs that have gone through negotiation begin to face biosimilar and generic competition.
Mel Whittington: Inma, thank you so much. I feel like we all just took a class in U.S. branded drug pricing. Let me attempt a brief summary, though I know I’ll be relistening to pick out more nuggets each time.
A branded drug has a variety of different prices across the major U.S. insurance markets — commercial, Medicaid, and Medicare (Parts B and D). The net price realized by the innovator is essentially list/gross price minus discounts and rebates, which differ by market. In Medicaid, it’s list price minus the Medicaid rebate (based on AMP and best price, which spill over from the commercial market), plus any state supplemental rebates. In Part B, it’s ASP — already a net price — minus any inflation rebates. In Part D, it’s WAC minus negotiated discounts and rebates (like the MDP) and inflation rebates.
Inma Hernandez: And rebates negotiated by Part D plans themselves — sorry to interrupt, the professor in me can’t help it.
Mel Whittington: Good distinction, I appreciate it. Then 340B adds another layer — with no duplicate discounts permitted between Medicaid and 340B. And the Medicare Drug Price Negotiation Program under the IRA largely impacts the net price for drugs with an MFP in the Medicare market, with some spillover to Medicaid and 340B.
Inma Hernandez: I’m a little worried we’ll give someone a headache on their commute! For anyone interested in tracking these interactions, especially in these later sections, please refer to the figure — it should help you navigate all of this. I think Mel did a beautiful job summarizing, but I know I unloaded a lot of information.
Mel Whittington: My two takeaways for the audience: print the figure and keep it on your desk as a reference and remember that dealing with one market doesn’t mean the others aren’t impacted too. Thank you so much — this was a pleasure to have you on.
Inma Hernandez: Thank you for having me. Since I made the figure, I’d been wanting the opportunity to actually walk through it — I know it’s quite complex, so I’m grateful for the chance to discuss it. I hope this serves as an educational resource for students, trainees, and professionals tracking these policy interactions.
Mel Whittington: Absolutely. I hope to see you again soon. Thank you.
Inma Hernandez: Thank you.
Thank you for listening to this episode of Perspectives. If you’re interested in participating in future podcasts or would like to learn more about the Leerink Center for Pharmacoeconomics, please email cpe@medacorp.com.
Graphical Representation Created by Dr. Hernandez: Microsoft PowerPoint – Keynote_OPENING_Inma_ISPOR 2026
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