Study expected to increase calls for Medicaid-like rebates on drugs for dual eligibles.
August 23, 2011—State Medicaid agencies pay significantly less for brand-name drugs than commercial Medicare Part D plan sponsors because the statutorily defined Medicaid rebates that states receive on brand-name drugs are "substantially higher" than those negotiated by Part D plans, a new federal report concludes.
The study, by the Department of Health and Human Services Office of Inspector General (OIG), is likely to amplify calls for the federal government to regulate the collection of rebates on Part D drugs provided to patients who are eligible for both Medicaid and Medicare.
Rep. Henry Waxman (D-Calif.) and Sen. John D. Rockefeller IV (D-W.Va.) have introduced legislation to create the new rebates. The idea also is expected to be taken up by the congressional 12-member "super committee" tasked with developing a plan by Thanksgiving to cut federal spending by as much as $1.5 trillion. President Obama's deficit reduction commission called for the rebates in its report late last year, saying they would save the government $49 billion through 2020.
Pharmaceutical companies, however, strongly oppose the proposed rebates as "price controls" that would undermine Part D's success.
"Since its inception, Medicare Part D has provided unprecedented access to medicines at affordable prices," PhRMA Vice President Karl Uhlendorf said earlier this month in response to news that average monthly Part D premiums for 2012 will fall slightly.
"These continued low premiums add to the overwhelming body of evidence demonstrating how the competitive market structure of Part D is yielding great value for beneficiaries and the Medicare system overall," he continued. Uhlendorf also cited recent research showing that Part D reduces non-drug medical spending for beneficiaries, is costing less than predicted, and earns high marks from enrollees. "These facts illustrate that Medicare Part D is a model for health care that should be emulated, not weakened by unsound policy proposals," he said.
The Part D program relies on plan sponsors to negotiate rebates with manufacturers. The Medicaid drug rebate, in contrast, is calculated and collected in accordance with federal law.
Congress directed OIG to conduct the study when it passed the Affordable Care Act last year. For its review, OIG compared pharmacy reimbursement and rebates under Medicaid and Part D for the 100 brand-name drugs and 100 generic drugs with the highest Part D expenditures.
The study found that although Part D plans sponsors and state Medicaid agencies paid pharmacies similar amounts for most brand-name drugs under review, Medicaid unit rebate amounts for brand-name drugs exceeded Part D unit rebate amounts "by a substantial margin." Consequently, Medicaid's net unit costs (i.e., pharmacy reimbursement minus rebates) "were much lower than net unit costs under Part D," the study noted. Rebates reduced Medicaid expenditures on the 100 drugs studied by 45 percent in 2009 (from $6.4 billion to $3.5 billion) but by only 19 percent for Part D (from $24 billion to $19.5 billion.)
"Medicaid collected nearly two-thirds as much as Part D rebates for the 100 brand-name drugs ($2.9 billion vs. $4.5 billion), despite having only about one-fourth of the expenditure ($6.4 billion vs. $24 billion)," OIG wrote.
Medicaid rebates were much higher than those for Part D, OIG said, because manufacturers paid inflation-based rebates on top of basic rebates for virtually all of the brand-name drugs under review. In the aggregate, it explained, 55 percent of the $2.9 billion in rebates that manufacturers paid Medicaid in 2009 for the brand-name drugs studied was due to the fact that the drugs' average manufacturer price (AMP) rose faster than the rate of inflation.
Revenue from Medicaid rebates is likely to grow even more, OIG noted, due to the Affordable Care Act's increase in the rebate percentage on brand-name drugs from 15.1 percent to 23.1 percent.
With respect to generics, OIG found that Medicaid paid about 3 percent more per drug than Part D for 62 of the 100 generic drugs studied. But unlike rebates for brand-name drugs, it said, rebates for generics "had little impact in reducing net expenditures." Part D plans collected virtually no rebates on generics, it said, and Medicaid rebates on the drugs were minimal mainly because the rebate percentage for generics is smaller than for brand-name drugs and there is no inflation penalty.