OIG: Medicaid is losing money on rebate program for generic drugs

In another signal that the prices of even traditionally low-cost drugs may be spiraling out of control, a new report by the U.S. Department of Health and Human Services' Office of  Inspector General (OIG) has concluded that many generics have seen price increases far outpacing inflation.

The OIG said it conducted the review of the top 200 generic drugs ranked by volume of reimbursement from the Medicaid program from 2005 through 2014. Altogether, that time period covered 869 drugs.

Generics are generally a big cost-saver for the U.S. healthcare system, accounting for 88 percent of the nation's prescriptions but only 28 percent of the costs.

The OIG reviewed drug prices for those medications that are covered by the Medicaid rebate program. The program covers hundreds of generic medications that are covered for Medicaid enrollees on an outpatient basis. Under the program, each month the drug companies must report their average manufacturer's price and best price for their drugs to the Centers for Medicare & Medicaid Services (CMS). In lieu of purchases made by the Medicaid program, the manufacturers are supposed to provide Medicaid with a rebate that is either the greater of the difference between the average manufacturer's price and the best price, or a percentage of the average manufacturer's price. The data are distilled into what is known as a unit rebate amount, or URA, which is  the amount of the Medicaid rebate. 

The OIG found that the mandated URA-based rebate to Medicaid was 11 percent between 1993 and the end of 2009, rising to 13 percent beginning in 2010. But the actual price differential between the average manufacturer's price and its best price was 15 percent between 1995 and the end of 2009, but rose to 23.1 percent starting in 2010. Although drug manufacturers must pay additional rebates indexed to inflation for brand-name drugs, they are exempt from making such payments for generics.

Drug prices have been going up rapidly in recent years, with spending rising at a much faster rate than other facets of healthcare delivery. That's been exacerbated by the actions of firms such as Turing Pharmaceuticals, which purchased the rights to the 63-year-old drug Daraprim and raised its price more than 50-fold.

"We calculated that Medicaid would have received a total of $966 million in additional rebates for the top 200 generic drugs, ranked by Medicaid reimbursement, from 1991 through 2004," the OIG said in its report, later adding that the recent price inflation cost Medicaid as much as $1.4 billion in additional rebates. "We recommended that CMS consider seeking legislative authority to extend the additional rebate provisions to generic drugs." 

To learn more:
- read the OIG report (.pdf)

 

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