The Medicaid drug rebate program will undergo key changes to ensure that federal and state governments manage drug costs in the most effective way possible, while establishing a fairer reimbursement system for state programs and pharmacies. CMS outlined these changes in an advance release of the new Final rule, and addressed various comments. The rule implements changes to section 1927 of the Social Security Act as mandated by sections 2501, 2503, and 3301 of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148). The rule is effective April 1, 2016.
Changes to calculations. The drug rebate program’s calculation of manufacturer rebates and pharmacy reimbursement for some generic drugs is based on the average manufacturer price (AMP). The Final rule explicitly defines AMP as “the average price paid to the manufacturer for the drug” by both wholesalers and retail community pharmacies. The limiting factors of this definition are particularly important, as manufacturers typically receive a higher rate for drugs that are ultimately sold by retail pharmacies as opposed to other entities whose prices are excluded from AMP, such as insurers, hospitals, and organizations. The Final rule also increases the minimum rebate amount to a higher percentage of AMP for various types of drugs. Working together, the definition of AMP and the higher percentages raise the rebates, although total rebate amounts will not exceed 100 percent of the AMP.
Expansion. The rule allows AMP to be calculated for inhalation, infusion, instilled, implanted, or injectable drugs by prices paid by other entities outside of retail pharmacies. These drugs are not usually sold at such pharmacies, so without the explicit application of all prices paid, manufacturers would be unable to calculate AMP and pay rebates for them under the adopted definition. This is an important element of the Final rule, as these drugs are often expensive and represent a burden on Medicaid programs. Although CMS declined to adopt a formal definition for these drugs, known as “5i” drugs, the release notes that the “5i” acronym has been widely adopted in the industry and the agency is regularly using this term, as well.
Additionally, the program now requires manufacturers to pay rebates for drugs given to patients enrolled in managed care, if the managed care organization (MCO) is responsible for drug coverage. Prior to the ACA, manufacturers were exempted from paying rebates for MCO-dispensed drugs.
Covered outpatient drug. The program has always required drug manufacturers to pay rebates to states for covered outpatient drugs (CODs) paid out under the Medicaid plan. CMS has now established a definition of COD as a drug dispensed only on prescription and which is now required to have a national drug code (NDC). A drug, biologic, or insulin is not a COD when it is billed as a bundled service.
Pharmacy reimbursement. CMS is implementing certain changes to pharmacy reimbursement to better reflect the costs of acquiring drugs, as well as the professional dispensing fee. Multiple source drugs that are more expensive to acquire will be subject to a higher multiplier when calculating the federal upper limit (FUL) in order to ensure that the limit is not lower than average retail pharmacies’ acquisition costs. The rule also ensures that actual acquisition costs (AAC) will be established for ingredient cost reimbursements to better reflect marketplace prices. CMS notes that by reimbursing pharmacies at AAC, state and federal governments will save a considerable amount of money because Medicaid programs were reimbursing at inflated prices.
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