Analysis: Proposed Change in Medicaid Drug Rebate Program Could Affect Drug Pricing, Access in Other Markets

Avalere Report Finds Proposal to “Stack” Drug Discounts in Calculating Medicaid Best Price Could Lead to Disruption for Patients, Pharmacies, Payers, Manufacturers 

WASHINGTON – A proposal by the Biden Administration to change how prescription drug rebates are calculated in the Medicaid program could have ripple effects that could affect drug pricing and accessibility throughout multiple markets, according to an analysis prepared by the Avalere healthcare consulting and advisory firm and released by the Healthcare Leadership Council (HLC).

The proposed rule change would require drug manufacturers to aggregate, or “stack,” all rebates and discounts provided throughout the supply chain in calculating the “best price” they are required by law to offer the Medicaid program. Currently, for brand name drugs, the Medicaid rebate is set at the greater of 23.1 percent of a drug’s average manufacturer price (AMP) or the difference between the AMP and the “best price” available to any single private or public purchaser of the drug.

The Avalere analysis examined the potential impact of the proposed rebate policy across three drug classes – antipsychotics, multiple sclerosis drugs, and oncology products – and found that the “stacking” approach to calculating rebates could increase the statutory basic rebate by 17 to 21 percent. Further, the Avalere report described how an increase in Medicaid rebates “could lead to changes in contracting arrangements and market strategy across stakeholders,” specifically:

  • Manufacturers may re-evaluate the rebates they provide to commercial payers, which could affect patient cost sharing, access and formulary positioning.
  • Drugmakers could restructure their supply chain discounts, with possible financial implications for multiple supply chain participants from pharmacies to healthcare providers.
  • Increased Medicaid rebate liability could limit manufacturer flexibility in negotiating substantial rebate agreements with state Medicaid programs and reduce incentives to participate in innovative contracting arrangements.

HLC President Mary R. Grealy said the findings should prompt caution on the part of federal rulemakers before making such a substantive change in the long-standing Medicaid Drug Rebate Program.

“The Medicaid “best price” policy has worked well for over three decades, saving money for taxpayers while ensuring that our most vulnerable citizens have access to the medicines they need. Changing this policy may actually increase drug costs for more Americans by disincentivizing rebates and discounts throughout the supply chain. This is a proposed policy change that is not only unnecessary, but potentially very harmful for patients and consumers,” she said.

The Healthcare Leadership Council is an alliance of leading companies from all health sectors. You can find us on X (formerly Twitter) at @healthinfocus