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VA / DoD Pricing vs. Best Price - A Basic Framework

One component of negotiating a product’s price on the Department of Veterans Affairs (VA) Federal Supply Schedule (FSS) price negotiation is establishment of the Most Favored Customer (MFC). MFC is not the same as “Most Favored Nations” or Medicaid's "Best Price," but it is a critical data point that must be understood in order to achieve the preferred price in the federal market.


MFC is a required disclosure within the Commercial Sale Practices format. At its core, MFC a statement of fact and is not a formal point of negotiation or an offer. The MFC can become a point of discussion if the Government Contract Specialist does not agree with the identified entity that the offeror states is receiving the best price. Examples might include the Government Contract Specialist's perspective on particular discounts that are connected to services provided, non-contracted customers, etc. In those instances, the offeror must explain and substantiate the proposed MFC.


The process to identify the MFC begins with an offeror reviewing all its commercial contracts and identifying the commercial customer (or the commercial category/class of customer) that receives the best guaranteed discount, excluding all discounts given based on a qualifying event (i.e., prompt payment discounts, quantity-based discounts, etc.). To note, this is an evaluation of commercial customers only. Discounts provided to Government entities are excluded.


How Big 4 Pricing Compares


  • The Congressional Budget Office (CBO) analyzed a total of 210 brand drugs, of which 176 were top-selling and 64 were high-priced, with 30 drugs falling into both categories

  • CBO reported results for high-priced drugs and, for top-selling drugs: retail prices were virtually the same in Part D and Medicaid but net prices differed markedly because rebates and discounts in Part D averaged less than half of those in Medicaid

  • For both top-selling specialty drugs and high-priced drugs, Part D net and non-FAMP prices aligned closely (within 2.5 percent, despite non-FAMP excluding rebates); both were dramatically higher than Medicaid net prices


How can MFC affect awarded price?


Typically, price negotiations are initiated with an agreement between the two parties on the MFC. If the proposed product price is not equal to or better than the price guaranteed to the MFC, then the Government Contract Specialist will open price negotiations at the MFC price as is required by the regulations.


While the Government Contract Specialist is required to seek an equivalent to the MFC price, this ask, however firmly presented, does not mean the Government is entitled to that price. There are legitimate business-based reasons why best price should not be extended to the Government. While it is the responsibility of the offeror’s designated negotiator to communicate the necessary justifications to the Government Contract Specialist as to why that discount is not extended to the Government, it is the brand management team's responsibility to provide the data points and explanations such as the Federal Market anticipated patient population scope, predicted or actual ordering patterns, etc.


Preparing for FSS price negotiations is part of the Federal Market pre-launch strategy development process. Understanding what discounts will be extended in the commercial market and why, as compared to what discounts will be extended to the Federal Market, is the starting point. That comparison is based off the MFC price. Ensuring the offeror’s designated negotiator is equipped with facts and estimates in order to achieve the desired pricing outcome is the best pre-work that a product team can do to support a positive price negotiation outcome.

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