HHS has issued guidance aimed at blocking drug companies from manipulating a loophole in Medicaid’s payment policies that they can use to avoid paying out full rebates for certain medications.
When a drug manufacturer releases a “line extension” for a medication—for example, releasing an extended release version of a drug they already make—they can reset the price used to calculate the rebates they must pay.
In a letter (PDF) to states from the Centers for Medicare & Medicaid Services, the agency outlines the complex math that Department of Health and Human Services Secretary Alex Azar says will curb “abusive behavior” in Medicaid by drug companies.
Azar announced the guidance’s release in a speech at the American Legislative Exchange Council’s conference on Thursday, though the change was mandated by Congress in its bipartisan spending plan passed earlier this year.
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“Starting today, we’ve made clear that manufacturers must pay the full amount of rebates that they owe under the law,” Azar said.
The change—a “technical correction,” according to analysis from The Commonwealth Fund—could lead to significant savings in Medicaid drug spending. The Congressional Budget Office estimates the adjustment could save Medicaid $6.5 billion in drug costs over the next decade.
In a statement, CMS Administrator Seema Verma said that change ensures that that Medicaid program continues to protect the country’s “most vulnerable citizens.”
“As part of President Trump and Secretary Azar’s commitment to lowering the cost of prescription drugs, CMS is working with states and manufacturers to ensure that Medicaid receives the full amount of drug rebates that are owed,” Verma said. “We want to make the rules abundantly clear to ensure that manufacturers are not gaming the system.”
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In his speech, Azar also said that HHS is committed to providing greater flexibility and options to states as part of its varied health reform efforts. States can rethink how they regulate certificates of need or clinical scope of practice to encourage greater competition and choice for patients.
Regulations such as these, he said, are examples of how the government can stand in the way of beneficial change.
“I would urge all of you to take a look at how state and local regulations can be impeding healthcare competition, raising costs for patients and depriving them of choices,” Azar said.