Drug Rebate Equalization Act of 2009

Extend the Medicaid Rx Drug Rebate to Medicaid Managed Care

 

Background

Established in 1990 under the Omnibus Budget Reconciliation Act (OBRA), the Medicaid prescription drug rebate program requires pharmaceutical manufacturers to pay rebates to the State Medicaid programs as a condition of coverage of their prescription drug products.  However, the federal drug rebate program is currently restricted to Medicaid fee-for-service programs and does not apply to Medicaid managed care organizations’ purchases of drugs for Medicaid beneficiaries.

 

 

Concerns

Because of higher rebates offered in fee-for-service, some states exclude the drug benefit when they contract with Medicaid managed care organizations for services, an arrangement known as “carving-out” the drug benefit.  In those states, enrollees in the managed care portion of Medicaid receive drug coverage through the fee-for-service program.  Twenty-one states carve-out at least a portion of their pharmacy program.  In these difficult economic times, there has been an increasing trend for states to carve-out prescription drug coverage as they look for ways to increase revenue.

 

Because two entities cover one individual, drug carve-out provisions do not easily allow for the comprehensive coordination of both medical and pharmaceutical benefits.  Such efforts lead to a fragmented approach as managed care companies must coordinate care without complete knowledge of patients’ history of care and/or prescription drug usage, thereby undermining both the states’ and managed care organizations’ ability to provide high level of care and low costs.  Studies have shown that managed care provides drug coverage in a more cost-effective manner than fee-for-service programs, via formulary management, high generic fill rates, comprehensive drug utilization, and coordination of care.¹

 

 

Solution

Molina Healthcare supports legislation to extend the federal Medicaid drug rebate program, currently restricted to Medicaid fee-for-service programs, to Medicaid managed care organizations.  Earlier this year, Representative Bart Stupak introduced H.R. 904, the Drug Rebate Equalization Act, to reduce the costs of prescription drugs for enrollees of Medicaid managed care organizations by extending the discounts offered under fee-for-service Medicaid to such organizations.  Senator Bingaman (D-NM) introduced companion legislation in the Senate (S. 547) on March 9^th.

 

 

Savings

By combining the drug rebate discounts with existing drug utilization management systems, Medicaid managed care companies will achieve important savings in the care provided to Medicaid beneficiaries.  These savings will, in turn, reduce the cost of the Medicaid program to the federal and state governments. 

 

The Congressional Budget Office has scored the proposal of applying the fee-for-service Medicaid drug rebate to drugs purchased for Medicaid managed care enrollees as saving approximately $9 - $11 billion over 10 years.²

 

1 Center for Health Care Strategies, Comparison of Medicaid Pharmacy Costs and Usage between the Fee-for-Service and Capitated Setting, January 2003.

2 Congressional Budget Office, Budget Options, Volume 1, Health Care, December 2008.  

Chairman’s letter to the Chief Senate Sponsor