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Prescription Drugs 

The Medicaid Drug Rebate Equalization Act

Created by OBRA 1990, the Medicaid Drug Rebate Program requires drug manufacturers to have rebate agreements with the Secretary of Health and Human Services for states to receive federal funding for outpatient drugs dispensed to Medicaid patients as part of their fee-for-service programs.  At the time the law was enacted, health plans were excluded from access to the drug rebate program.  In 1990, 2.8 million people were enrolled in Medicaid health plans and so the savings lost by the exclusion were relatively small.  Today, nearly 22 million people are enrolled in capitated health plans.

Through the drug rebate, states receive between an 18 and 20 percent discount on brand name drug prices and between 10 and 11 percent for generic drug prices.  According to a study by The Lewin Group, Prior to passage of the Patient Protection and Affordable Care Act (PPACA), which included a policy called the Medicaid Drug Equalization Act of 2009 (DRE), Medicaid-focused MCOs typically only received about a 6 percent discount on brand name drugs and no discount on generics.  Because the Medicaid program is required by law to get the best and lowest price via the drug rebate mechanism, Medicaid managed care plans paid higher prices to manufacturers for the drugs although they also serve Medicaid beneficiaries. 

Fortunately, the DRE equalized the drug rebate program between fee-for-service and managed care, providing states with the best of both worlds – allowing plans to continue managing drug utilization while also obtaining access to the lower costs drugs through the drug rebate.

ACAP members worked closely with Congress to enact the Drug Rebate Equalization Act of 2009 (DRE), sponsored by Representative Bart Stupak and Senator Jeff Bingaman.  The DRE passed in both the House and Senate as part of their respective comprehensive health care reform legislation, and was signed into law on March 23, 2010 by President Obama with PPACA. The DRE became effective upon enactment.

CBO states that enactment of this policy would “lessen the amount of influence that rebates exert in a state’s decision to carve out their pharmacy benefit”  and would “permit MCOs to manage the drug benefit, which would help the MCOs better coordinate and manage enrollees’ care and their use of prescription drugs.”

Extending the drug rebate to Medicaid health plans has been widely supported by organizations representing state governments, Medicaid providers, and health plans, including the National Governors Association, the National Association of State Medicaid Directors, the Partnership for Medicaid, the Safety Net Hospital Pharmacy Coalition, and the Medicaid Health Plans of America.  In addition, this policy was endorsed by the Medicaid Commission created by the Senate in the FY2006 budget resolution.

Prescription Drugs 

The Medicaid Drug Rebate Equalization Act

Created by OBRA 1990, the Medicaid Drug Rebate Program requires drug manufacturers to have rebate agreements with the Secretary of Health and Human Services for states to receive federal funding for outpatient drugs dispensed to Medicaid patients as part of their fee-for-service programs.  At the time the law was enacted, health plans were excluded from access to the drug rebate program.  In 1990, 2.8 million people were enrolled in Medicaid health plans and so the savings lost by the exclusion were relatively small.  Today, nearly 22 million people are enrolled in capitated health plans.

Through the drug rebate, states receive between an 18 and 20 percent discount on brand name drug prices and between 10 and 11 percent for generic drug prices.  According to a study by The Lewin Group, Prior to passage of the Patient Protection and Affordable Care Act (PPACA), which included a policy called the Medicaid Drug Equalization Act of 2009 (DRE), Medicaid-focused MCOs typically only received about a 6 percent discount on brand name drugs and no discount on generics.  Because the Medicaid program is required by law to get the best and lowest price via the drug rebate mechanism, Medicaid managed care plans paid higher prices to manufacturers for the drugs although they also serve Medicaid beneficiaries. 

Fortunately, the DRE equalized the drug rebate program between fee-for-service and managed care, providing states with the best of both worlds – allowing plans to continue managing drug utilization while also obtaining access to the lower costs drugs through the drug rebate.

ACAP members worked closely with Congress to enact the Drug Rebate Equalization Act of 2009 (DRE), sponsored by Representative Bart Stupak and Senator Jeff Bingaman.  The DRE passed in both the House and Senate as part of their respective comprehensive health care reform legislation, and was signed into law on March 23, 2010 by President Obama with PPACA. The DRE became effective upon enactment.

CBO states that enactment of this policy would “lessen the amount of influence that rebates exert in a state’s decision to carve out their pharmacy benefit”  and would “permit MCOs to manage the drug benefit, which would help the MCOs better coordinate and manage enrollees’ care and their use of prescription drugs.”

Extending the drug rebate to Medicaid health plans has been widely supported by organizations representing state governments, Medicaid providers, and health plans, including the National Governors Association, the National Association of State Medicaid Directors, the Partnership for Medicaid, the Safety Net Hospital Pharmacy Coalition, and the Medicaid Health Plans of America.  In addition, this policy was endorsed by the Medicaid Commission created by the Senate in the FY2006 budget resolution.

 Title 
4/22/10 CMS State Medicaid Letter on DRE Implementation GuidanceDownload
2/26/09 President Obama's Budget Expands Health Coverage for More Americans and Modernizes the Medicaid Drug RebateDownload
9/22/08 Analysis of Dual Eligible Pharmacy Costs Under Medicaid and Medicare Part DDownload
9/22/08 Analysis of Drug Rebate Equalization Act's Savings to the Medicaid ProgramDownload
10/24/07 Programmatic Assessment of Carve-In and Carve-Out Arrangements for Medicaid Prescription DrugsDownload
6/11/07 S.1589Download
4/18/07 FAQs on Drug RebateDownload
3/5/07 Drug Rebate One PagerDownload
5/29/03 Extending the Federal Drug Rebate Program to Medicaid MCOs: Analysis of ImpactsDownload
1/1/03 Comparison of Medicaid Pharmacy Costs and Usage between the Fee-for-Service and Capitated SettingDownload
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8th Annual CEO & Policy Summit

ACAP held its 8th annual, invitation-only CEO Summit on July 13 & 14, 2010 in Washington, DC. Thank you to all the speakers and attendees for making it such a successful event. The agendas and presentations are available on the CEO Summit page of the website.

8th Annual CEO & Policy Summit

ACAP held its 8th annual, invitation-only CEO Summit on July 13 & 14, 2010 in Washington, DC. Thank you to all the speakers and attendees for making it such a successful event. The agendas and presentations are available on the CEO Summit page of the website.