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Manufacturer Rebates Offset Mounting Costs of Medicaid Brand-Name Drugs

Prices and payment amounts for Medicaid brand-name drugs soared at around three times the inflation rate between 2005 and 2010, reports the Office of the Inspector General. These significant increases, however, were offset by savings created by the Medicaid drug rebate program.

Reports issued by AARP reveal that wholesale acquisition costs (WAC) for the most widely used brand-name prescription drugs have significantly increased since 2002. Addressing Senator Bill Nelson’s concern over AARP’s findings, OIG reviewed drug pricing changes and their impact on Government health care programs like Medicaid. The study examined changes in WACs, average manufacturer prices (AMP) and Medicaid payment amounts for brand-name drugs from 2005-2010. OIG also looked at the effect of rebates paid by drug manufacturers as part of the rebate program.

WACs, AMPs and Medicaid payment amounts increased between 34 and 40 percent at the median over the five-year period, while the inflation rate increased by just 13 percent. Increases in prices and payment amounts for brand-name drugs didn’t just outpace overall inflation though, they outpaced the inflation rate in each of the five years under review. The Office of the Inspector General did find that the per-unit net cost to Medicaid increased at a lower rate than other points of comparison between 2005 and 2009 when the per-unit payment amounts for Medicaid brand-name drugs were adjusted to account for the rebate amounts paid to States by manufacturers. Medicaid’s rebate-adjusted payment amounts for brand-name drugs actually declined at the median in 3 of 4 years.

The results of the study indicate that price increases for brand-name drugs don’t necessarily result in corresponding increases in Medicaid costs. Medicaid’s net costs for brand-name drugs actually increased at a lower rate than other points of comparison, including the inflation rate, due to the savings generated by the rebate program.

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