Higher Medicaid Rebates Will Help to Fund COVID Rescue Plan

Last Thursday March 11, the American Rescue Plan Act of 2021 was signed by President Biden.

Out of the hundreds of pages of this COVID relief legislation, our pinpoint focus here is on several pages relating to Medicaid coverage and drug rebates.  The legislation requires Medicaid and the Children’s Health Insurance Program (CHIP) to cover COVID-19 vaccines, vaccine administration, testing, and treatments, without cost sharing, for all eligible beneficiaries during the public health emergency and for one year after it ends.  Sec. 9811(a)(1), (2).  The legislation also makes clear that COVID therapies and preventive measures are subject to rebates under the Medicaid Drug Rebate Program if they are “covered outpatient drugs” as defined in the Medicaid Drug Rebate statute.  Sec. 9811(a)(4).  As with other vaccines, COVID-19 vaccines remain excluded from the Medicaid Drug Rebate Program.  Sec. 9811(a)(4).

A question arises whether an unapproved drug authorized under an emergency use authorization (EUA) is a covered outpatient drug subject to Medicaid rebates.  Under a literal reading of the definition of a covered outpatient drug, such a drug must be approved under section 505 or 506 of the FDC Act or section 351 of the Public Health Service Act.  An EUA is authorized under section 564 of the FDC Act and is not an approval pursuant to those provisions.  However, in a somewhat related context, CMS has suggested that an EUA is an “approval” under the FDC Act.  COVID-19 Frequently Asked Questions (FAQs) for State Medicaid and Children’s Health Insurance Program (CHIP) Agencies, p.18, fn. 3.   Hopefully CMS will provide guidance on this point.

Of broader consequence to drug manufacturers generally, effective January 1, 2024, the legislation sunsets the cap on the total Medicaid unit rebate amount that was instituted by the Affordable Care Act.  Sec. 9816.  (The House version of the bill had this change taking effect January 1, 2023, but the effective date for the change was extended by one year by the Senate.)  The total calculated Medicaid rebate amount is comprised of the basic rebate and the additional rebate, which is a penalty imposed for raising a price at a rate greater than the rate of inflation.  Without a cap, the rebate can be more than the average manufacturer price (AMP) of the drug.  The Affordable Care Act capped the rebate at 100% of the AMP so that a manufacturer would not pay a higher rebate for a drug than its AMP.  According to the House Report, CBO estimates that eliminating this cap will increase the amount of rebates that manufacturers pay Medicaid and will reduce direct spending in Medicaid by $15.9 billion over the 2021-2030 period.