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Medicaid Rebates for Brand-Name Drugs Exceeded Part D Rebates by a Substantial Margin

WHY WE DID THIS STUDY

Drug rebates reduce the program costs of both Medicare Part D and Medicaid. Medicaid rebates are defined by statute and include additional rebates when prices for brand-name drugs increase faster than inflation. In contrast, Part D sponsors (or contractors acting on their behalf) negotiate rebates with drug manufacturers, and there are no statutory requirements regarding the amounts of these rebates. A 2011 OIG report found that statutorily defined Medicaid rebates for selected brand-name drugs exceeded Part D rebates by a substantial margin. The report also found that the inflation-based additional rebate, meant to protect Medicaid from large increases in drug prices, was the primary reason that Medicaid rebates were higher than Part D rebates. A Member of Congress requested an update to the previous OIG report. Specifically, the Member asked OIG to reexamine the prices and rebates under Part D and Medicaid, given the increase in Medicaid rebates under the Affordable Care Act, and to determine the proportion of rebate dollars attributed to inflation based rebates under Medicaid.

HOW WE DID THIS STUDY

We determined total Part D and Medicaid drug expenditures and rebates in 2012. We also determined total 2012 Part D and Medicaid expenditures and rebates for 200 selected brand-name drugs and compared the differences between the two programs. Further, we determined whether the manufacturers of the selected drugs owed inflation-based rebates and the amount of these inflation based rebates.

WHAT WE FOUND

Total rebates under Medicaid were substantially higher than total rebates under Medicare Part D. Also, Medicaid's net unit costs (i.e., the pharmacy reimbursement amounts minus rebates) were much lower than net unit costs under Part D in 2012 for the 200 selected brand-name drugs, and the statutorily defined Medicaid rebates exceeded Part D rebates by a substantial margin. Further, more than half of Medicaid rebates owed by manufacturers for selected brand-name drugs were attributed to the inflation-based add-on rebates.

WHAT WE CONCLUDE

This is the second OIG evaluation examining the prices and rebates under Medicaid and Medicare Part D. Both evaluations demonstrate the substantial difference in rebates collected under Medicaid and Part D. While we recognize the statutory limitations surrounding rebate collection under Part D, we encourage CMS and Congress to explore the costs and benefits of obtaining additional rebates under Part D. Some options include an examination of the impact of "dual-eligible" beneficiaries (i.e., beneficiaries eligible for both Medicare and Medicaid) on each program's rebate totals and an analysis of methods to protect Part D from significant increases in drug prices.

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

Download the complete report.

Office of Inspector General, U.S. Department of Health and Human Services | 330 Independence Avenue, SW, Washington, DC 20201