Changes to Medicaid Rebate and DME Payment Among Cost-Saving Measures Considered by Senate Finance Committee

 By Alan M. Kirschenbaum – 

The Senate Finance Committee released a white paper today outlining policy options that the Committee is considering to offset the cost of upcoming health care reform legislation.  The proposed options include lifestyle taxes (e.g., alcohol excise taxes), reductions in subsidies and incentives related to health care (e.g., repealing the itemized deduction for medical expenses), and, of course, direct savings within Medicare and Medicaid.  Among the latter are three proposed changes to the Medicaid Drug Rebate Program:

• Increasing the base Medicaid rebate for innovator drugs from 15.1 to as much as 23.1 percent of AMP, with best price provisions remaining unchanged.

• Increasing the basic Medicaid rebate for non-innovator multiple source drugs from 11 to 13 percent of AMP.

• Requiring Medicaid rebates to be paid on drugs dispensed to enrollees in Medicaid managed care organizations.  These drugs are currently exempt from the Medicaid rebate requirement.

• Applying the baseline AMP of the original product to line extensions for purposes of calculating the so-called “additional rebate” for innovator drugs.  The additional rebate penalizes price increases exceeding the rate of inflation, compared against a baseline AMP for the first full quarter after launch.  Currently, new dosages or formulations are considered new products with new baseline AMPs separate from those of the original product.  This permits companies to escape the low initial pricing of the original product and reset the baseline AMP when calculating the additional rebate.  The Committee proposes that, “when a new, extended release version of an existing drug is introduced,” the additional discount would be calculated using the baseline AMP of the original drug or the new drug, whichever would result in a larger amount.  It is unclear whether the new proposal would apply to changes other than new extended-release formulations (for example, other formulation changes).

These Medicaid Rebate proposals first appeared in the Obama Administration’s FY 2010 budget outline, which we reported on previously.  The Finance Committee is also considering options to improve payment accuracy for items and services of durable medical equipment (DME), and a variety of payment reforms for other Medicare and Medicaid services.