Obtain the data you need to make the most informed decisions by accessing our extensive portfolio of information, analytics, and expertise. Sign in to the product or service center of your choice.
With the passage of The American Rescue Plan of 2021, President
Joe Biden has marked the first legislative achievement of his
presidency. With the majority of the USD1.9 trillion bill focused
on providing COVID-19 relief, reviving the economy, as well as
allocating resources to continue the battle against SARS-CoV-2,
very little attention has been paid to another important
milestone.
A small provision to remove the cap on Medicaid rebates
(estimated to cost the industry billions of US dollars) was added
to the bill - marking the administration's first pharmaceutical
pricing and reimbursement (P&R) legislative
reform.
Democratic lawmakers took the opportunity to introduce a
provision to sunset the rule capping Medicaid drug rebates as of 1
January 2024 for single-source and innovator multi-source drugs.
Currently, Medicaid rebates are capped at 100% of the average
manufacturer price (AMP) for innovator drugs. However, as
of 2024 there will be no ceiling on rebates paid by manufacturers
to Medicaid programs.
The Medicaid Drug Rebate Program (MDRP)
Under current law, manufacturers participating in the Medicaid
Drug Rebate Program (MDRP) are required to provide a statutory
Medicaid rebate of about 23.1% of the list price (AMP) or the
difference between AMP and best price (whichever is higher) for
most innovator drugs, which is further adjusted by the Consumer
Price Index-Urban (CPI-U). The mandatory rebates were created to
ensure Medicaid is paying the "lowest" price for prescription drugs
sold to any commercial insurer. Manufacturers would also be liable
for more rebates if the price increases faster than inflation. In
some cases, and particularly for branded drugs whose prices
consistently rise faster than the CPI-U, the rebates could exceed
the AMP - suggesting that manufacturers would effectively be paying
Medicaid for using their drugs! Pursuing above-inflation price
increases is a calculated strategy, that would need to be weighed
against the benefits of raising list prices to commercial
plans.
Biden's first P&R policy could cut pharmaceutical
spending by USD16 billion over 10 years
The drugs most likely to be affected by the provision are
branded drugs that have reached the 100% AMP rebate cap by
consistently having list price increases or for which particularly
large rebates are provided to other commercial payers. An estimated
2,300 drugs were at the 100% AMP cap in 2019, according to former
Health and Human Services (HHS) Secretary Alex Azar. The
Congressional Budget Office (CBO) estimates that the cap prevented
the collection of an additional USD3 billion in rebates for
outpatient drugs in 2019. Removal of the rebate cap would reduce
Medicaid spending by USD16 billion over 10 years, according to the CBO (the
estimates assumed the cap would be removed as of 2023, although
this was later amended in the final version of the bill to begin in
2024).
Rebates play a very critical role in reducing spending for the
Medicaid program and have swelled in recent years. In 2018,
Medicaid spent USD60 billion on drugs and received USD36.2 billion
in rebates, reducing gross drug spending by nearly 60%. There are
concerns that the elimination of the cap could lead to higher
launch prices for new drugs, or some of the impact being mitigated
by increasing costs to commercial plans or Medicare.
Regardless, this is likely only the beginning when it comes to
pharmaceutical pricing reforms for the US market under the Biden
administration. With the confirmation of Xavier Becerra as HHS
Secretary, there is no doubt that the current administration will
be actively working towards achieving key items on its healthcare
agenda, including strengthening and broadening the Affordable Care
Act (ACA), as well as tackling pharmaceutical prices. Biden
supports more controversial policies that would allow Medicare to
negotiate drug prices directly with drug manufacturers, or
establish a pricing review board to ensure drug prices do not
exceed a "reasonable price" that could be based on international
reference pricing (IRP).
With the introduction of former President Donald Trump's
Most-Favored Nation (MFN) model last year, we noted that the US could be
closer than ever to implementing IRP-based P&R reforms, and
this risk continues to be elevated under the current
administration. While regulatory policies such as MFN could easily
be challenged and stalled in court, legislative changes would
likely be enduring and transformative for the industry.