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Improving Operations of the Medicaid Drug Rebate Program

High rates of spending growth for prescription drugs have been of great concern to state and federal Medicaid officials. In 2014, Medicaid prescription drug spending experienced its highest rate of growth in almost three decades. And although spending growth slowed in 2015 and 2016, over the next 10 years prescription drugs could see the fastest average annual spending growth of any major health care good or service due to growth in high-cost specialty drugs.

Chapter 1 describes current Medicaid prescription drug policy and its rebate program—the primary mechanism to reduce state and federal Medicaid drug spending. The Commission makes two recommendations to ensure more accurate drug rebates. First, the Commission recommends closing an apparent loophole in current law that allows a manufacturer to sell its authorized generic at a low price to a corporate subsidiary to reduce its rebate obligation for its brand drug.

Second, the Commission recommends giving the Secretary of the U.S. Department of Health and Human Services clear authority to impose intermediate financial sanctions on manufacturers that misclassify a brand drug as a generic to lower their rebate payments. Currently, the Secretary may address misclassification only by terminating a manufacturer’s participation in the rebate program. Authority to impose financial penalties would give the Secretary an enforcement mechanism while protecting beneficiary access to prescription medications.

From: June 2018 Report to Congress on Medicaid and CHIP