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09-09-2013

Report (OEI-12-12-00260)
Medicare Could Collect Billions If Pharmaceutical Manufacturers Were Required To Pay Rebates for Part B Drugs

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Summary

WHY WE DID THIS STUDY

Statutorily mandated rebates enabled Medicaid to recoup a substantial percentage of the $28 billion spent on prescription drugs in 2011. That same year, Medicare Part B expenditures exceeded $16 billion on prescription drugs; however, no similar rebate authority exists for Part B to reduce the costs of drugs to the program. In response to a congressional request, OIG estimated in 2011 that if pharmaceutical manufacturers had been required to pay rebates similar to those under Medicaid for 20 high-expenditure Part B brand-name drugs, Medicare could have collected up to $2.4 billion in rebates, representing as much as 26 percent of expenditures for those drugs in 2010. Whereas our original analysis was limited to 20 brand-name drugs, this current study provides a more thorough examination of the potential collections associated with Part B rebates, as well as implementation issues.

HOW WE DID THIS STUDY

For each of the 60 Healthcare Common Procedure Coding System codes that represented 85 percent ($13.9 billion) of total 2011 Part B drug expenditures, we calculated how much manufacturers would have owed in rebates based on average manufacturer prices (AMP-based rebates) and average sales prices (ASP-based rebates). We reviewed previous OIG work and documented the methodological challenges we encountered in this study to identify issues that would need to be addressed before implementing a rebate program under Medicare Part B.

WHAT WE FOUND

Medicare could have collected $3.1 billion if pharmaceutical manufacturers had been required in 2011 to pay AMP-based rebates for 60 high-expenditure Part B drugs, representing 22 percent of spending for those drugs. Requiring manufacturers to pay ASP-based rebates for the same 60 drugs could have garnered Medicare $2.7 billion in rebate payments, representing 20 percent of spending. However, several implementation issues related to claims and data would need to be addressed if such a rebate program were implemented.

WHAT WE RECOMMEND

We recommend that the CMS examine the additional potential impacts of establishing a prescription drug rebate program under Medicare Part B and, if appropriate, seek legislative change. As part of its consideration, CMS should address administrative issues that may hinder rebate collections. CMS did not concur with our recommendation.

Copies can also be obtained by contacting the Office of Public Affairs at Public.Affairs@oig.hhs.gov.

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