RAAP Policy Study: Medicare's "Maximum Fair Price" Is Not a Transferable Model for State Drug Pricing

WASHINGTON, Feb. 18, 2026 /PRNewswire/ -- As states explore new strategies to address prescription drug affordability, the Rare Access Action Project (RAAP) today released an issue paper warning policymakers against attempting to replicate Medicare's Maximum Fair Price (MFP) framework at the state level.

The second of two Prescription Drug Affordability Boards (PDAB) related policy papers released by RAAP concludes that Medicare's MFP is not a transferable model for state drug pricing efforts and cautions that borrowing the concept for state PDABs would likely create legal conflicts, market distortions, and patient access challenges, just like the use of any upper payment limit (UPL).

While MFP is often described as a "negotiated" fair price, RAAP's analysis explains 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 and sets a Maximum Fair Price backed by federal enforcement mechanisms, including civil monetary penalties and excise tax exposure. Manufacturers must either comply or risk losing access to the Medicare market entirely.

"Medicare's leverage comes from its national scope and compulsory participation," said Michael Eging, Executive Director of RAAP. "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."

The study highlights several structural barriers that prevent states from replicating Medicare's model:

Limited State Authority. Federal ERISA preemption restricts state oversight of large segments of the commercial market. 

Reimbursement vs. Acquisition Pricing. Medicare's MFP changes the acquisition price manufacturers must accept within the program. By contrast, PDAB-imposed UPLs typically cap what insurers may reimburse — without changing what manufacturers charge. When reimbursement falls below acquisition cost, pharmacies, hospitals, and physicians must absorb the difference or reconsider whether to stock or administer certain therapies.

The paper, researched and written by Jennifer Snow of Apteka Policy, stated, "The downstream effects can result in narrower networks, site-of-care shifts, increased prior authorization requirements, and delays in patient access.

Rather than attempting to replicate a federal pricing tool that depends on federal leverage, RAAP urges states to pursue alternative affordability strategies that directly address patient cost exposure without disrupting care delivery."

 Recommended approaches include:

• Targeted caps on patient out-of-pocket costs and cost-sharing smoothing mechanisms
•  Enhanced pharmacy benefit manager (PBM) transparency and pass-through requirements
•  Risk pooling and reinsurance models for high-cost, low-volume therapies
•  Guardrails and exemptions where PDAB authority is used to protect vulnerable access points

Eging concluded, "States are right to focus on affordability. But policy discipline matters. If the goal is to protect patients. Reforms should reduce what patients pay at the pharmacy counter — not create reimbursement distortions that ultimately limit where and how patients can receive care."

The full issue brief which provides a detailed legal and operational analysis of how Medicare's MFP differs from state pricing authority can be found here: https://www.rareaccessactionproject.org/uncategorized/why-medicares-maximum-fair-price-is-not-a-model-for-state-drug-pricing/

RAAP, the Rare Access Action Project, is a coalition of patient and life sciences stakeholders that explore creative policy solutions to address structural issues in access and coverage. Our priority is to help ensure rare disease patients have access to the care and treatments they need.

SOURCE Rare Access Action Project (RAAP)