Legal Matters

HHS Tightens Scrutiny of Compliance With Medicaid Drug Rebate Program Regulations (Part 2 of 6)

From Drug Benefit Trends®Posted 02/12/2004

By Diane Ung, JD; George Kenny, JD


The Medicaid Drug Rebate Program

The Medicaid Drug Rebate Program (MDRP) is a relatively new addition to the Medicaid program, added by the Omnibus Budget Reconciliation Act (OBRA) of 1990.[1] Pharmaceutical manufacturers are required to enter into and maintain rebate agreements with CMS in order to have their products available as Medicaid-covered benefits.[1] Currently, the District of Columbia and 49 states (all except Arizona) cover drugs under the MDRP, and about 550 pharmaceutical manufacturers participate.[2]

The rebate agreement requires that pharmaceutical manufacturers supply their products to state Medicaid programs at the lowest prices at which the drugs are offered to other purchasers (excluding certain specified purchasers)—that is, the manufacturer's "best price." Generally, pharmacies purchase drugs through their normal distribution channels, dispense the prescriptions to Medicaid recipients, and bill the state Medicaid agency for the cost of the drug plus a modest dispensing fee. At the end of each quarter, the state Medicaid agency tallies the number of prescriptions filled for each product. The agency then determines the difference between what it paid the pharmacy (represented by the average manufacturer price [AMP], which is the average price at which a manufacturer sells a product, other than to federal purchasers and state drug assistance programs) and the manufacturer's reported best price. That difference generally is the "rebate" owed to the state Medicaid agency by the manufacturer.[3]

After a state calculates the rebate amount due, manufacturers have 38 days from that date to pay the rebate.[4] If any disputes with manufacturers over rebate amounts arise, the state is required to provide a hearing to resolve them.[4]

Each state's Medicaid agency reports rebate collections to CMS on a quarterly basis. The rebate data are used to determine a state's overall quarterly Medicaid expenditures eligible for federal financial participation.


Drug Benefit Trends 16(1):16-18, 2004. © 2004 Cliggott Publishing, Division of CMP Healthcare Media

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