How to Strengthen the Medicaid Drug Rebate Program to Address Rising Medicaid Prescription Drug Costs

Key Findings

  • The Medicaid Drug Rebate Program is highly effective. In 2016, rebates paid by drug manufacturers lowered Medicaid prescription drug costs by more than 51.3 percent, compared to rebate savings of only 19.9 percent in Medicare Part D. To help state Medicaid programs better address rising prescription drug costs, policymakers should consider proposals that build on and strengthen the rebate program, rather than weaken it.
  • Federal policymakers could consider options to strengthen the Medicaid Drug Rebate Program such as increasing the rebates to deter excessive launch prices and annual price increases, eliminating the cap on rebate amounts, and extending the rebate program to separate state CHIP programs.
  • State policymakers could adopt policies already available under federal law such as expanding and maximizing the supplemental rebates that states negotiate with drug manufacturers, increasing drug pricing transparency, and enhancing the use of drug effectiveness reviews.

Fifth in a series of briefs on the future of children’s health care coverage


Prescription drugs are essential for the health of tens of millions of low-income children enrolled in Medicaid. They not only are part of routine pediatric care but also provide critical treatment and maintenance for chronic conditions such as asthma and attention deficit hyperactivity disorder, illnesses like childhood cancers, serious behavioral health issues, and rarer conditions such as cystic fibrosis and spinal muscular atrophy.1

The Medicaid Drug Rebate Program (MDRP) is highly successful in significantly reducing state Medicaid prescription drug costs, while ensuring access to needed prescription drugs for low-income children, families and other beneficiaries who rely on Medicaid today. It is achieving the intent of the drug rebate program, when it was enacted in 1990, to make prescription drugs much more affordable for state Medicaid programs and low-income beneficiaries by ensuring that Medicaid gets among the largest discounts, and thus among the lowest effective prices, available to any payer. Medicaid obtains rebates that are far larger than those in Medicare Part D and in private insurance.

Yet, while net prescription drug costs constituted only 5.4 percent of total Medicaid benefit spending in 2016 and annual Medicaid prescription drug cost growth has significantly moderated since 2014, overall prescription drug costs are expected to continue to increase at a faster rate than other health care goods and services over the next decade due in large part to continued specialty drug cost growth, according to the Medicaid and CHIP Payment and Access Commission (MACPAC).2 As a result, to better help state Medicaid programs address these rising drug costs and ensure continued access to needed prescription drugs for low-income Medicaid beneficiaries such as children and families, federal and state policymakers should take sound steps to improve and strengthen the Medicaid Drug Rebate Program, but not do anything to weaken or undermine it.

Full Report

Download and read the full report.

Additional Resources

Archived Webinar: Helping State Medicaid Programs Better Address Rising Drug Costs

Blog: New CCF Issue Brief on Strengthening Effective Medicaid Drug Rebate Program

  1. Jack Hoadley and Joan Alker, “How Medicaid and CHIP Shield Children from the Rising Costs of Prescription Drugs” (Washington:Georgetown University Center for Children and Families, July 2017), available at
  2. Medicaid and CHIP Payment and Access Commission, “Chapter 1:Improving Operations of the Medicaid Drug Rebate Program, June 2018 Report to Congress” (Washington: Medicaid and CHIP Payment and Access Commission, June 2018), available at According to the Office of the Actuary at the Centers for Medicare and Medicaid Services, Medicaid retail prescription drug costs increased by 3.1 percent in 2017, as compared to 5.0 percent in 2016, 11.6 percent in 2015 and 23.9 percent in 2014. The rapid increases in 2014 and 2015 were driven largely by the market entry of new drugs treating Hepatitis C. See Office of the Actuary at the Centers for Medicare and Medicaid Services, “Table 16: Retail Prescription Drug Expenditures” (Washington: Office of the Actuary at the Centers for Medicare and Medicaid Services, December 2018), available at Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsHistorical.html.
Edwin Park is a Research Professor at the Georgetown University McCourt School of Public Policy’s Center for Children and Families.