28 Jan How Does the Medicaid Rebate Cap Affect Brand-Name Drug Prices?
MedicalResearch.com Interview with:
Sean Dickson, JD MPH
Officer, Drug Spending Research Initiative
The Pew Charitable Trusts
Washington, DC 20004
MedicalResearch.com: What is the background for this study?
Response: Price increases on existing drugs are an ongoing challenge for patients and insurers, including government programs like Medicaid and Medicare. The Medicaid program requires drug manufacturers to provide a rebate that offsets price increases greater than inflation, but that rebate is capped once price increases exceed 433 percent above inflation.
When these rebates are capped, manufacturers may find it more profitable to take very large price increases, raising costs for all payers. The Medicaid program has proposed removing the cap, and this study considers the effects of that proposal.
MedicalResearch.com: What are the main findings?
Response: 271 drugs had capped rebates in 2017, reducing Medicaid rebates by $104M, or 0.4 percent of 2016 net drug expenditures (the most recent year for net expenditure data at the time of the study). 85 percent of the reduced rebates were attributable to 25 drugs, with 46 percent attributable to diabetes treatments. One form of insulin (insulin lispro) accounted for 38 percent of reduced rebates, or $40M.
However, these increased rebate payments would only have reduced 2017 insulin lispro total U.S. revenues by 2.3 percent, which may not be sufficient to encourage the manufacturer to reduce the price. The second-highest reduced rebate ($6M) was for pyrimethamine and would have reduced revenues by 9 percent.
MedicalResearch.com: What should readers take away from your report?
Response: Removing the Medicaid rebate cap would only modestly increase Medicaid rebates, and the additional penalty may not be enough to discourage price increases. However, uncapping Medicaid rebates may discourage some of the largest price hikes, such as those seen on older drugs used by a small population.
MedicalResearch.com: What recommendations do you have for future research as a result of this work?
Response: Another policy proposal – doubling the Medicaid inflation rebate for price increases more than 10 percent above inflation and tripling it for price increases more than 25 percent above inflation – may be more effective in discouraging large price increases. Using the Medicaid rebate program to discourage price increases would not only reduce Medicaid spending, but it could reduce price growth for other payers.
Dickson S. Estimates of the Number of Brand-Name Drugs Affected by the Medicaid Rebate Cap in 2017. JAMA Intern Med. Published online January 22, 2019. doi:10.1001/jamainternmed.2018.6559
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