The Trump administration has taken action to try to stop drugmakers from gaming the Medicaid drug rebate program when they put new formulations of their products on the U.S. market.
New guidelines for biopharmaceutical companies and states, issued Aug. 9, are intended to ensure that manufacturers participating in the Medicaid drug rebate program pay what they owe, Health and Human Services Secretary Alex Azar said.
Medicaid provides healthcare coverage for eligible low-income Americans. The program is administered by states under federal requirements.
Under the Medicaid drug rebate program, participating drugmakers that want their products covered by the federal government must offer states a price that includes a minimum rebate or, if lower, the best price the manufacturers provide to private-sector purchasers, such as hospitals.
Congress created the Medicaid drug rebate program nearly 30 years ago as a way to leverage the large volume of medicines the government purchases on behalf of low-income beneficiaries to obtain price concessions from biopharmaceutical companies.
Exploiting a loophole
The Affordable Care Act established a different rebate amount calculation for new brand-name oral solid dosage formulations, or line extensions, such as extended-release products or once-daily pills.
But drugmakers found a loophole in the law and used it to reset the price used to calculate the inflation rebates they must pay, Azar said during remarks at the annual meeting of the American Legislative Exchange Council in New Orleans.
"This meant they could pay less than they would otherwise owe, just by introducing a new drug formulation," he said. "This is the kind of abusive behavior from drug companies that this administration will not tolerate."
Congress, however, tweaked the law to close the loophole when it passed the Bipartisan Budget Act in February — a two-year spending agreement that also had big implications for the Medicare Part D prescription drug benefit.
Paying a fair share
The new Medicaid guidelines are intended to clarify the change in the law.
They will "make clear that manufacturers must pay their fair share," Centers for Medicare and Medicaid Services Administrator Seema Verma said in an Aug. 9 tweet.
"The Medicaid program serves our nation's most vulnerable citizens," she said. "We want to make the rules abundantly clear to ensure that manufacturers are not gaming the system."
Verma said the guidelines fall in line with the administration's efforts to lower Americans' costs for prescription medicines.
"American drug prices are too high," Azar said. "High drug prices burden the personal finances of the people you serve, and they can also have a significant impact on state government budgets and the taxpayer."
He noted that about 10% of what is spent on drugs in the U.S. occurs in Medicaid.
"A new generation of high-cost drugs has been a real challenge for many states," Azar said.
The health secretary said the administration also was working to undo what it has deemed a "giveaway" to drug companies passed in the Affordable Care Act, in which Congress put a cap on the penalty that manufacturers would pay when they raised prices faster than inflation.
"Under that policy, after a certain point, drug companies can continue raising a drug's price without paying any more in rebates to state Medicaid programs," Azar said. "That practice has to stop, too."
Lifting the cap was one of the reforms the administration included in its strategic plan to lower drug prices, unveiled in May.
Azar noted other recent actions the administration has taken to fulfill the pledges it made to lower costs, including allowing private insurance plans sold through the government's Medicare Advantage program to require seniors and the disabled to use cheaper medicines before they can try more expensive drugs administered in doctors' offices or outpatient facilities — an approach known as step therapy.
The drug industry, however, has objected to that action.
The Pharmaceutical Research and Manufacturers of America said permitting step therapy in Medicare Advantage would delay many beneficiaries' access to the medicines they need, interfere with the patient-physician relationship and increase burdens on doctors to comply with new, more complicated requirements.
Azar made no mention, however, of President Donald Trump's latest vow that a new action to "substantially" lower drug prices was coming next week.
Trump made a similar promise May 30, in which he said some "big drug companies" would provide "massive" price cuts by mid-June, but that did not happen.