Periodically I write up news on the Medicaid Drug Rebate Program (MDRP) and here’s another (albeit overdue) edition highlighting some recent MDRP policy developments:

1. The Centers for Medicare and Medicaid Services (CMS) will not finalize its proposal to require manufacturers to “stack” discounts when determining best price under the MDRP. The best price requirement, which is intended to ensure that Medicaid obtains discounts at least as large as those available to most purchasers in the commercial sector, is a critical component of the MDRP that substantially lowers federal and state Medicaid spending on brand-name drugs. Because of the MDRP, the Congressional Budget Office (CBO) has found that Medicaid obtains the lowest prices, net of rebates and discounts, among other federal programs and agencies including the Department of Veterans Affairs,  with the CBO analysis also showing that the best price requirement is an essential contributor to the MDRP’s success.

In May 2023, CMS issued a proposed rule related to the MDRP.  That proposed rule, which is yet to be finalized, included a sound provision which would require that in the case of multiple discounts, rebates or other arrangements that subsequently adjust the price available from manufacturers, the manufacturer must “stack” such discounts, rebates or other arrangements cumulatively in determining best price, including discounts, rebates and other arrangements provided to different best price eligible entities.  As our public comments to the proposed rule explained in detail, we agreed with CMS’s statement in the preamble to the proposed rule that “[b]y stacking, best price reflects the lowest realized price at which the manufacturer made that drug unit available.”  We also agreed with CMS that manufacturers “are required to take rebates into account for multiple entities when calculating [Average Manufacturer Price or] AMP, and for logical reasons, best price should do so as well, since including them in AMP and not accounting for them in best price could result in AMP being lower than best price.”  As a result, we noted that requiring stacking for purposes of the determination of best price was wholly consistent with the definition of best price under section 1927 of the Social Security Act which refers to the “lowest price available from the manufacturer” to any applicable entity.  Our public comments thus strongly supported this provision of the proposed rule because it would have the effect of better ensuring that manufacturers are complying with the MDRP’s best price requirement, which in turn would increase basic rebates under the MDRP and lower net federal and state Medicaid prescription drug costs over time.

Unfortunately, likely due to strong industry opposition, CMS announced on May 15, 2024 that while it is continuing its work in finalizing the overall proposed rule, it would not finalize the stacking requirement.  CMS would instead pursue additional information from manufacturers related to best price stacking methodologies to inform future rulemaking.  However, this will mean that manufacturers that break up multiple price concessions across two or more entities as part of the same transaction would continue to have higher best prices — and therefore owe lower rebates — than would be the case if they had to stack all cumulative discounts they provide under the best price requirement.  Hopefully, CMS will try again soon to institute a best price stacking requirement through rulemaking, although it has now been pursuing such a sound stacking policy since at least 2016.

2. The Department of Health and Human Services (HHS) issued a final rule related to Section 504 of the Rehabilitation Act that would prohibit the discriminatory use of “QALYs” by state Medicaid programs. I have previously written (here and here) about a flawed House-passed bill (H.R. 485) that would expand an existing Medicare provision barring the use of Quality-Adjusted Life Years (QALYs) to other federal programs including Medicaid and the Children’s Health Insurance Program (CHIP). QALYs, which attempt to measure how a drug or treatment can lengthen lives or improve quality of life, have raised concerns from patient groups and people with disabilities because they could risk discrimination against those who have serious illnesses, are older, or have disabilities.  But the prohibition in H.R. 485, as drafted, is overbroad and would likely impede states’ longstanding use of comparative effectiveness reviews, including clinical, pricing and value assessments, by state Medicaid Pharmacy and Therapeutics (P&T) Committees.  This, in turn, could undermine the ability of state Medicaid programs (or multi-state purchasing pools and/or Medicaid managed care plans on their behalf) to continue to  negotiate Medicaid supplemental rebates from drug manufacturers, on top of the rebates required under the MDRP.  As a result, I had recommended that H.R. 485 could be amended by limiting its scope solely to a prohibition on use of QALYs or including clarifications explicitly permitting the types of comparative effectiveness reviews widely used by state Medicaid programs today.  I had also noted that a proposed September 2023 rule from the Office of Civil Rights (OCR) in the U.S. Department of Health and Human Services related to section 504 of the Rehabilitation Act of 1973 would effectively prohibit the discriminatory use of QALYs by any recipient of federal funding furnished through HHS (including state Medicaid agencies) and therefore would address any need for legislative action.

In May 2024, OCR finalized the section 504 rule.  The final rule adds 45 C.F.R. § 84.56 which requires that no individual with a disability “shall, on the basis of disability, be subjected to discrimination in medical treatment under any program or activity that received Federal financial assistance….”  In addition, the final rule adds 45 C.F.R. § 84.57 which requires that a recipient of federal funding “shall not, directly or through contractual, licensing or other arrangements, use any measure, assessment, or tool that discounts the value of life extension on the basis of disability to deny or afford an unequal opportunity to qualified individuals with disabilities….”  The final rule thus prohibits the discriminatory use of QALYs.  However, the preamble to the final rule makes clear that in negotiating rebates with manufacturers and making utilization management decisions, state Medicaid agencies can continue to refer to academic research that include both QALYs or other similar methods that discount the value of extension on the basis of disability and non-discriminatory methods so long as Medicaid agencies only use pricing metrics gleaned from the non-discriminatory methods in such research.  The preamble also notes that there are alternative value assessment methods that are not discriminatory and those can continue to be used by state Medicaid programs in negotiating supplemental rebates.  Finally, the preamble also clarifies that the final rule does not prohibit QALYs or similar methods themselves in academic research; it only prohibits the discriminatory use of such research in determining eligibility, referral for, or provision or withdrawal of an aid, benefit or service in programs such as Medicaid.  As a result, the final OCR rule should obviate the need for overbroad legislation such as H.R. 485.  The OCR rule took effect on July 8, 2024.

3. Manufacturers of high-cost cell and gene therapies appear to be promoting “warranty” payments as another value-based purchasing arrangement but such an arrangement would have the effect of undermining the MDRP’s best price requirement. I have been warning (here, here and here) of the serious risk that manufacturers could use certain value-based purchasing arrangements — particularly commercial outcome-based contracts that vary rebates and discounts based on actual patient outcomes — to largely or entirely evade the MDRP’s best price requirement once CMS finalized a rule allowing manufacturers to report variable best prices. That rule took effect in July 2022.  Now, manufacturers of cell and gene therapies appear to be promoting yet another outcome-based payment scheme that is likely intended to lower their rebate liability under the MDRP by evading the best price requirement.  Under a “warranty” approach, manufacturers would reimburse commercial payers for future medical non-drug expenses incurred by patients when a therapy does not result in expected patient outcomes.  Because the warranty payments are related to the cost of subsequent medical services and not directly to the cost of the drug therapy itself (as rebates are), proponents argue that they would not factor into the determination of best price.  If CMS agrees that best price would not be implicated, manufacturers of high-cost cell and gene therapies could switch most or all of their sales arrangements to warranty payments (or at least switch arrangements that currently furnish the largest discounts and thereby set best price to warranty payments) and be thus able to lower their rebate liability which would increase net prescription drug costs for state Medicaid programs.
4. CCF submitted public comments to the Senate Finance Committee related to the Medicaid provision in its draft drug shortages bill that would roll back inflation-related rebates for most generic drugs under the MDRP. In 2015, Congress enacted the Bipartisan Budget Act (P.L. 114-74). Among its health provisions, the law extended inflation-related rebates under the MDRP — which have applied to brand-name drugs since the MDRP’s inception — to generic drugs starting on January 1, 2017, in order to discourage manufacturers of generic drugs instituting excessive price increases and to produce Medicaid savings for both the federal government and the states.  When the Medicaid inflation-related rebates for generic drugs were enacted, the Congressional Budget Office (CBO) estimated that the provision would reduce federal Medicaid spending by $1 billion over ten years including 156 million in the tenth year.  But according to researchers at Brigham and Women’s Hospital and Harvard University, Medicaid inflation-related rebates for generic drugs reduced federal and state Medicaid generic prescription drug costs by between 2 and 12 percent or $516 million to $6.5 billion in just the first four years (2017-2020) they were in effect.  As a result, extending the Medicaid inflation-related rebates under the MDRP to generic drugs have been very effective in lowering Medicaid prescription drug costs.

I have previously written about my serious concerns about a draft bill from Senate Finance Committee Chair Ron Wyden and Ranking Member Mike Crapo that is intended to address generic drug shortages.  At the end of May 2024, CCF submitted public comments related to the Medicaid provisions of the draft drug shortages bill.  As our comments explain, the Medicaid provisions of the draft generic drug shortages bill would permanently and fully exempt most generic drugs from the inflation-related rebates under the MDRP irrespective of whether the drugs are in shortage or at risk of being in shortage.  Only single source drugs not in shortage that have an annual cost over $100 would, in general, remain subject to the inflation-related rebates.  As a result, this exemption would constitute a broad rollback of the Medicaid inflation-related rebates for generic drugs.  In turn, the exemption would leave state Medicaid programs at risk of facing higher prescription drug costs resulting from price spikes for most generic drugs even as it would likely have little effect in ameliorating generic drug shortages.  Our public comments instead recommended that the Medicaid provisions of the draft bill be revised substantially to make any exemption from the Medicaid generic inflation-related rebates far more targeted, temporary and limited.