PhRMA files federal lawsuit to get rid of controversial Medicaid drug rebate rule

Dollar bill with a hole in Washington's face on it and the word "Medicaid" in its place
Drugmakers are going to court to overturn a rule that requires them to include copay assistance into Medicaid drug rebate amounts. (zimmytws/GettyImages)

The pharmaceutical industry wants a federal judge to ditch a controversial rule that requires drugmakers to factor copay assistance and discounts into rebates offered to Medicaid.

The Pharmaceutical Research and Manufacturers of America (PhRMA), a top pharma lobbying group, sued the Department of Health and Human Services in the U.S. District Court for the District of Columbia on May 21 over the rule finalized back in December 2020. The lawsuit claims that the rule directly contradicts federal law surrounding Medicaid rebates.

“CMS’ final rule contradicts the plain text of the Medicaid rebate statute by improperly requiring manufacturers to treat financial assistance that they provide to patients to help defray their co-pays and other out-of-pocket costs as part of the ‘price’ a manufacturer offers to commercial insurers,” the lawsuit said.

If the lawsuit is successful, it will roll back an effort by the Trump administration to target assistance such as copay cards that the agency has said does not fully help patients. The rule does not go into effect until Jan. 1, 2023.

The rule touched on a major battle between insurers and pharmacy benefit managers (PBMs) and the drug industry.

Drugmakers that want Medicaid coverage of their products must agree to provide those drugs at the same costs as those given to commercial purchasers. Manufacturers agree to pay rebates to the states to make up the difference.

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The program requires manufacturers to report to states the “best price” of a drug that is calculated based on the lowest price available to a wholesaler, retailer or provider and the average manufacturer sales price, which is the average price paid to wholesalers and retail pharmacies. The rebate for brand-name drugs is based on the difference between the best price and average manufacturer price for a product. A generic drug rebate is based on 13% of an average manufacturer price.

But the rule now makes clear that copay assistance cards and other cost-sharing assistance offered by the drugmaker must be counted in the best price calculation.

“This change will help ensure that when patients use a copayment assistance card provided by a drug manufacturer, the value is passed through to the patient’s deductible or cost-sharing obligation in full, as opposed to offsetting what the health insurance company would have to normally reimburse the pharmacy,” according to a CMS press release from December on the final rule.

The rule also comes as insurers and PBMs have adopted copay accumulator programs that limit the impact of a manufacturer’s assistance on a patient’s deductible or out-of-pocket cost limit.

The pharmaceutical industry argues the accumulator programs seek to undermine patient assistance tools, while the PBM industry counters the programs could cause patients to choose more expensive drugs over cheaper options and increase healthcare costs for employers.

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PhRMA argued in the legal filing that the rule directly contradicts the best price text in the Medicaid rebate program’s statute.

The law defines the best price as the lowest price made available to any “wholesaler, retailer, provider, health maintenance organization, nonprofit entity or governmental entity within the United States.”

But drugmaker assistance is not part of the price available to any of those purchasers, PhRMA argued.

“Manufacturer assistance to patients is not part of the ‘price’ available from the manufacturer to any best-price-eligible purchaser, with or without an accumulator adjustment program,” the lawsuit said. “Accumulator adjustment programs deploy only after a drug has been paid for and dispensed and diverts the assistance that the manufacturer provided to the patient, against the manufacturer’s will and often without its knowledge.”

The Centers for Medicare & Medicaid Services did not immediately return a request for comment on the lawsuit.