New Medicare Trustees Report Continues to Show Greater Effectiveness of Medicaid Drug Rebate Program Compared to Medicare Part D

As I’ve previously written, the Medicaid drug rebate program is very effective.  It requires drug manufacturers to provide sizable rebates that significantly lower federal and state Medicaid prescription drug costs while ensuring access to needed medications for tens of millions of low-income beneficiaries.

Last week, the Medicare Trustees issued their latest annual report on the status of the Medicare program.  Among the data it released, the Trustees found that the rebates negotiated between private insurers and drug manufacturers lowered overall Medicare Part D costs by only 19.9 percent in 2016 (see Table IV.B8).

In comparison, according to the Medicaid and CHIP Payment and Access Commission, in federal fiscal year 2016, manufacturers paid $31.2 billion in rebates to the federal government and the states, lowering Medicaid prescription drug costs by 51.3 percent.

Other analysis has similarly found that the drug rebates manufacturers pay in Medicaid are far larger than what Medicare Part D plans receive.  For example, among select brand-name drugs with the highest Part D expenditures, the HHS Office of Inspector General previously determined that the median “unit rebate amount” rebate was about three times larger than under Part D in 2012 and ten times or more for many drugs.  Altarum recently estimated that relative to the full retail or “point of purchase” price for brand-name drugs, Medicaid receives rebates of about 61 percent, while Medicare Part D plans obtain rebates of about 31 percent (and private insurance plans negotiate rebates of only about 16 percent.)

Despite the success of the Medicaid rebate program, there is an ongoing push to weaken or undermine it, including a Trump Administration proposal to allow up to five states to opt out of the rebate program that raises serious concerns.  Such efforts could increase state Medicaid costs while placing beneficiary access to prescription drugs in substantial jeopardy.  Rising Medicaid drug costs should instead be addressed by building on and strengthening the existing rebate program.

Edwin Park is a Research Professor at the Georgetown University McCourt School of Public Policy’s Center for Children and Families.