Draft Chapter: Improving Operations of the Medicaid Drug Rebate Program

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March 2018

Outpatient prescription drug coverage is an optional benefit that all state Medicaid programs have elected to provide. The amount Medicaid spends for a particular outpatient prescription drug reflects two components―the initial payment to the pharmacy and the rebate that Medicaid receives from the manufacturer, which is greater for brand name drugs than it is for generics. The Department of Health and Human Services Office of Inspector General has found that approximately 3 percent of drugs are potentially misclassified and Medicaid may not be receiving the appropriate rebate amounts.

This presentation reviews a draft chapter on improving operation of the Medicaid drug rebate program, which provides an overview of the program and the limits of federal oversight, and discusses current issues involving rebates for authorized generic drugs. It concludes with two recommendations to Congress approved by the Commission to improve operations of the Medicaid drug rebate program:

  • To ensure that manufacturer rebates are based on the price of the drug available to wholesalers and pharmacies, Congress should remove the statutory requirement in section 1927(k)(1)(C) that manufacturers blend the average manufacturer price of a brand drug and its authorized generic.
  • Congress should give the Secretary of Health and Human Services the authority to level intermediate financial sanctions to compel drug manufacturers to submit accurate drug classification data and strengthen enforcement actions. These authorities could include clear authority to reclassify an inappropriately classified drug and to level civil monetary penalties for the submission of inaccurate drug classification data.

Publication Type: Presentations

From: March 2018 MACPAC Public Meeting

Tags: prescription drugs, spending, spending growth