Medicaid prescription drug rebate program

CBO, for example, stated at the time that it was a relatively new trend that payers were starting to manage their drug benefits with formularies and contract with pharmacy benefit managers. Rebates negotiated by Medicare Part D plans are already exempt from best price. As part of the Medicare drug law, Congress specifically excluded Medicare Part D rebates from the calculation of best price because of concerns that the best price provision could interfere with the expected ability of Part D private insurance plans to negotiate larger rebates than those required under Medicaid.

Medicare Part D rebates ended up considerably smaller than those achieved in Medicaid even though they were exempt from best price. Moving drug coverage from Medicaid to Medicare for the dual eligibles resulted in significant financial windfalls in for manufacturers whose products were disproportionately used by low-income seniors and people with disabilities on both Medicare and Medicaid.

And the gap in rebates between Medicaid and Medicare Part D continues to be substantial. For example, as I have previously written , in fiscal year , Medicaid rebates lowered prescription drug costs by The HHS Office of Inspector General found that the median unit rebate amount in Medicaid was about three times larger than under Part D in and 10 times or more for many drugs. In addition, preliminary results from an analysis conducted by CBO finds that for the top-selling brand-name specialty drugs, the weighted average Medicaid rebates was more than three times larger than in Part D.

Extending Medicaid-level rebates to the entire Part D program would produce even larger savings. Other assumptions in the CBO analysis are similarly outdated.

For example, prior to the widespread adoption of managed care in Medicaid, CBO stated that Medicaid managed care plans could negotiate their own discounts that were as good or better than under the rebate program including its best price requirement. That also turned not to be the case, as CBO subsequently estimated that extending the Medicaid Drug Rebate Program to Medicaid managed care would produce savings prior to the ACA instituting that extension even without an increase in the minimum rebate.

In Chapter 1, the Commission makes two recommendations aimed at 1 supporting states in their efforts to develop appropriate prescription drug coverage criteria and 2 increasing Medicaid rebates for outpatient prescription drugs, effectively reducing spending on these drugs, which are expected to experience one of the largest growth rates among health care goods and services ….

February Prescription Drugs , Spending. This fact sheet lays out various trends in Medicaid prescription drug spending from FYs to Payment for outpatient prescription drugs: how the rebate program works Payment for physician-administered drugs Featured publications June Prescription Drugs Chapter 1 looks at high-cost specialty drugs, which are increasingly driving Medicaid spending and creating financial pressure for states.

June Prescription Drugs In Chapter 1, the Commission makes two recommendations aimed at 1 supporting states in their efforts to develop appropriate prescription drug coverage criteria and 2 increasing Medicaid rebates for outpatient prescription drugs, effectively reducing spending on these drugs, which are expected to experience one of the largest growth rates among health care goods and services …. Share this page on:. An analysis from CBO was conducted in , shortly after the creation of the Rebate Program, and showed some initial price increases but found increases due to MDRP ceased within a few years.

There is renewed policy interest in the MDRP as states and the federal government explore policies related to drug costs. Proposals at both the state and federal level would make changes directly to the MDRP, and proposed changes to other programs may have implications for Medicaid as well.

Because the MDRP is a complex program that has evolved over time, it contains some technical issues and provisions that lower the rebate amount paid for some drugs. Policymakers are considering several changes to address these issues and increase the effective rebate amount.

While these changes would produce savings for both the federal and state government, authority for undertaking them rests at the federal level, since the MDRP is in federal statute. Because of rising prices over time, a number of drugs have reached the rebate cap. Increasing or eliminating the cap would generate savings for the program and lower revenues for drug manufacturers.

Another policy proposal to increase the Medicaid rebate amount is to change the rebate calculation. Some manufacturers have reduced their rebate obligations by blending the price of an authorized generic with a brand name drug, which reduces the AMP of the brand drug.

Legislation enacted in Fall prohibits manufacturers from engaging in this practice. A third set of technical changes to MDRP relates to data and reporting. The rebate calculation relies on price data and product information submitted by manufacturers to CMS. Misclassified drugs or inaccurate price information in these files affects the rebate calculation.

A number of policy proposals would strengthen price enforcement mechanisms at the federal level to improve the accuracy of information and ensure appropriate rebates are paid and allow for penalties for reporting inaccurate information. Due to the structure of the MDRP, state levers to negotiate supplemental rebate agreements have primarily been limited to PDL placement. In addition, as statutory rebates have increased over time, state supplemental rebates have grown much more slowly and declined as a share of total rebates.

Some policy proposals focus on increasing purchasing power to negotiate additional supplemental rebates. As of fiscal year , at least 17 states had a uniform PDL for one or more drug classes.

PBMs have been another area of focus for state efforts to increase supplemental rebates. Much activity in this area involves increased transparency about PBM practices by, for example, requiring PBMs to report their discounts, rebates and profits to the state to ensure that the state is receiving the maximum rebates possible. More than half of states have passed a law addressing some aspect of PBM practices and transparency.

Other state efforts include expanding the scope of supplemental rebates—for example, by extending supplemental rebates to MCOs—or adding an inflationary component to supplemental rebates. A final way in which states have been pursuing supplemental rebates is through value-based purchasing. With the increasing number of high-price, breakthrough drugs that cost hundreds of thousands up to millions of dollars, states are examining ways to pay for these therapies within their constrained budgets.

Some states are pursuing alternative payment methods, or paying for value, as possible solutions. States have authority to pursue these agreements, but they must fit within the parameters of the MDRP.

Given the best price provision, which leads manufacturers to hesitate to offer lower prices, states have opted to craft their arrangements under the umbrella of supplemental rebates, which are exempt from best price.

As of October , six states have approval to implement alternative payment models via supplemental rebates. Some legislative proposals would provide further authority for states to enter into risk-sharing, value-based contracts with manufacturers for outpatient drugs that are potentially curative treatments.

Some policy discussion in recent years has been about opting out of or eliminating the MDRP, which essentially creates an open formulary, to allow states to use closed formularies in Medicaid, under which only specific drugs in each therapeutic class are covered. The Trump Administration has expressed interest in this approach, and the FY budget called for a new Medicaid demonstration authority to enable up to five state Medicaid programs to create their own formularies and negotiate directly with manufacturers instead of participating in the Medicaid Drug Rebate Program.

While not specifically targeted to Medicaid or MDRP, policy proposals to change the structure of rebates or prices in Medicare and the private market also affect Medicaid.

These indirect effects occur because many proposals affect list prices or AMP, which in turn affect Medicaid rebate calculations. The Administration withdrew the idea, but analyses of the proposal at the time indicated that it would increase Medicaid spending. This outcome would occur through decreased list prices by manufacturers, which would lower the inflationary Medicaid rebate.

Policy changes that would allow the federal government to negotiate Medicare prices also may have implications for Medicaid, depending on how the price applies to the wider marketplace and the prices used to set Medicaid rebates.