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.
Pharmaceutical manufacturers are required to enter into and
maintain rebate agreements with CMS in order to have their
products available as Medicaid-covered benefits.
Currently, the District of Columbia and 49 states (all except
Arizona) cover drugs under the MDRP, and about 550
pharmaceutical manufacturers participate.
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
After a state calculates the rebate amount due,
manufacturers have 38 days from that date to pay the
rebate. If any disputes with manufacturers over
rebate amounts arise, the state is required to provide a
hearing to resolve them.
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
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