Medicaid Rebate Law

The power of certain classes of purchasers to exact discounts was recognized by the framers of the 1990 Medicaid Rebate law (Public Law 101-508) which requires manufacturers to offer Medicaid the best price (i.e., lowest price) they offer to private purchasers if the manufacturer wants to sell its products to the Medicaid patient. The strategy may have backfired, however, because manufacturers eliminated many such discounts to HMOs and hospitals when they found that they would lose the amount of the discount on a large part of their total market (431), (Medicaid makes up 10 to 15 percent of the market for outpatient drugs.)... 

The magnitude of such discounts has declined since 1990, when the Medicaid Rebate Law (Public Law 1(31-508) made it costly for pharmaceutical firms to offer such discounts (431). 

The Supreme Court allows a Maine law to go into effect that requires drug companies participating in the state Medicaid program to pay supplemental rebates. The rebates reduce the costs of prescription drugs for non-Medicaid drug users. 

Specifically, the law prohibits a company from offering any remuneration (including any kickback, bribe or rebate) directly or indirectly, overtly or covertly, in cash or in kind to anyone to induce them to purchase a product or service for which reimbursement may be sought under Medicaid or Medicare. Regulations provide for safe harbors. ... 

The law does allow the Secretary of HHS to exclude from the weighted average price calculation, new products that increase the rebate to Medicaid, but only if their inclusion would impose undue hardship upon the manufacturer. The law also gives the Secretary the power to impose an alternative mechanism for calculating the Additional Rebate. No such alternative approaches have been published to date. 

Kuhlik, B.E., The Medicaid Prescription Dmg Rebate and Improved Access to Medicines Requirements of the Omnibus Budget Reconciliation Act of 1990, Food Drug Cosmetic Law Journal 46 363-390, March 1991. 

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