CMS updates Medicaid rebate calculation for new drug formulations

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CMS issued a new rule updating the formula it uses to calculate Medicaid rebates for line extension drugs. (Getty/Jacoblund)

The Centers for Medicare & Medicaid Services (CMS) has issued a final rule tweaking the rebate calculation formula in Medicaid for a category known as line extension drugs.

The change in the rule (PDF) was mandated in the Bipartisan Budget Act of 2018, according to the Centers for Medicare & Medicaid Services. Line extension drugs are new formulations of existing drugs. 

CMS Administrator Seema Verma said in a tweet that the adjustment is designed to boost how much money state Medicaid programs get back from drug companies through rebates. 

“This clarification will help ensure that state Medicaid agencies get their fair share of Medicaid rebates from prescription drug manufacturers,” Verma tweeted. 

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The change will be effective beginning in rebates from October 2018, according to the rule. CMS estimates that the adjustment could save Medicaid $1.64 billion over five years and $3.95 billion over the next decade. 

“This savings will be the result of additional rebates being paid by drug manufacturers, as applicable,” according to the rule. 

CMS said it did not calculate the potential impact of the change on providers, as it’s likely to be insignificant. 

In addition, the new regulation adjusts CMS’ definition of a line extension drug. Public comments warned that its existing definition was too broad and did not align with current statute.

CMS said that it now defines such medications as new formulations of drugs—such as an extended-release formula—but would not consider abuse-deterrent formulas under that designation.

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