Medicaid Drug Rebate Program Changes

Before covering the latest Medicaid Drug Rebate Program changes, let’s start with a brief review of the recent state and historical changes.

Prior to 2019:

The Medicaid Drug Rebate Program (aka OBRA 90 rebates) is a mandatory program for pharmaceutical manufacturers if they want their products covered under the Medicaid Program and requires participation in the 340B program.  The rebates are based on Average Manufacturer Price (AMP) as the starting point, but manufacturers must also report the Best Price.  Using AMP, Best Price, and the Consumer Price Index (CPI) adjustment a rebate, up to a maximum 100%, is calculated for a drug in a given month for Medicaid.  CMS calculates a unit rebate amount (URA) and provides it to the states.  The URA times the quantity dispensed for the product equals the rebate due from the manufacturer.

Limiting rebates to a maximum of 100% generated net brand costs that were less than generics when high or maximum CPI adjustment was included for Medicaid.


The authorized generic effects on the AMP, and ultimately on the Medicaid Rebates calculated with the CPI adjustment, was impactful to the market.  In 2019, prices for authorized generics were removed from the brand AMP calculations to increase the AMP and generate increased Medicaid Rebates. and

Preparing for 2024:

The American Rescue Plan Act of 2021 removes the maximum cap on Medicaid Rebates.  Beginning January 1, 2024, the rebate calculation will change, and all CPI adjustments will be included without a cap.  Therefore, a manufacturer of a brand drug with cumulative price increases that are greater than 76.9% of the CPI will be required to pay Medicaid plans for dispensing their drug, i.e., rebates will be greater than the price of the product.  Previously, these products were known as penny products in the 340B program, where the 340B price was equal to $0.01/unit.  Going forward in 2024, the manufacturer could be paying the 340B covered entity for using their product.  The pricing calculation timing lag means the late 2023 monthly sales will determine the January 2024 Medicaid rebates.


Expect manufacturers to re-evaluate their product portfolios for brands that approach or exceed the 100%+ Medicaid Rebate.  Multiple data points will be required to evaluate the impact, including the mix of business between Commercial, Medicare Part D, Medicaid, and other payors.  Options to reduce or avoid the expanded Medicaid Rebate focus on the brand AMP, which is impacted by price changes compared to the CPI and sales volume.  The other options are to halt sales for that brand product.  Will manufacturers adjust their pricing decisions with this upcoming change?


Posted: April 2021

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