On June 15, the Medicaid and CHIP Payment and Access Commission (MACPAC) issued its June 2018 Report to Congress on Medicaid and CHIP. The MACPAC report included recommendations for two sound, albeit modest, improvements to the highly effective Medicaid drug rebate program which could lower state and federal Medicaid prescription drug costs:
Prevent manufacturers of brand-name drugs that make their own generic version of their drugs (known as “authorized generics”) from artificially lowering the Medicaid rebates they pay.
Drug companies sometimes sell the authorized generic version of their brand-name drug to another manufacturer so that it can be distributed. But if that second company has a corporate relationship with the brand-name drug company (for example, they have the same parent company), the brand-name company may intentionally charge a much lower “transfer” price than it would otherwise charge another manufacturer or wholesalers. This would have the effect of lowering the Medicaid rebates the manufacturer pays for its brand-name drug because the formula used to determine rebate amounts takes into account the price of authorized generics. In other words, manufacturers can game the rebate program through this approach and reduce the rebates they otherwise would owe to state Medicaid programs. MACPAC recommends eliminating these types of authorized generic transactions from the calculation of rebates.
Give the Secretary of Health and Human Services new enforcement tools to ensure drug manufacturers do not misclassify their drugs as brand-name or generic drugs.
Some manufacturers have inappropriately and inaccurately classified some of their brand-name drugs as generics in order to reduce how much they pay in rebates. For example, the minimum rebate for generic drugs is 13 percent of Average Manufacturer Price (AMP), while the minimum rebate for brand-name drugs is 23.1 percent of AMP. Moreover, generic drugs are not subject to the “best price” requirement; for brand-name drugs, the base rebate is equal to the higher of the minimum rebate or the largest “best price” discount provided to most other purchasers. According to MACPAC, to address the problem of misclassification, the Secretary should be given the explicit authority to impose civil monetary penalties on manufacturers for misclassification and to directly change the classification of a drug. That’s because it is unclear whether the Secretary currently has the authority to impose these intermediate-level sanctions. (The Secretary can always end Medicaid coverage of all of a manufacturer’s drugs but the Centers for Medicare and Medicaid Services have never used this termination authority to sanction misclassification.)
These MACPAC recommendations are good steps in the right direction, which build on and strengthen the successful Medicaid drug rebate program. But additional federal policy changes are needed to help state Medicaid programs better address growing prescription drug costs while preserving beneficiary access to needed drugs. That will be the subject of a forthcoming CCF analysis.
