Federal Regulatory Guidance and Actions: Medicaid Drug Rebates

NCSL Resources

CAD flagThis is one in a series of NCSL documents offering assistance to states in interpreting and implementing the Affordable Care Act.

Medicaid Drug Rebates

Title II, Subtitle F, Section 2501

Increase Minimum Rebate Percentage for Single Source Drugs

  • Increases the minimum manufacturer rebate for brand-name drugs purchased by state Medicaid programs from 15.1% of average manufacturer price to 23.1% of average manufacturer price.
  • Increase Minimum Rebate Percentage for Clotting Factors and Drugs Approved by the FDA for Pediatric Use Only.
  • Increases the minimum manufacturer rebate for brand-name drugs purchased by state Medicaid programs from 15.1% of average manufacturer price to 17.1% of average manufacturer price.

Limit on Total Rebate Liability

  • Limits total rebate liability on an individual single source or innovator multiple source drug to 100 percent of AMP for that drug product. Other features of the drug rebate program, such as the Medicaid's best price provision, would remain unchanged.  

Guidance/Information  - Health and Human Services (HHS)

April 22, 2010: Cindy Mann, director for the Center for Medicaid and State Operations, issued guidance through a letter to State Medicaid Directors today by providing information on Section 2501 in the health reform legislation concerning increased rebates percentages for covered outpatient drugs dispensed to Medicaid patients, the extension of prescription drug rebates to covered outpatient drugs for Medicaid managed care organizations(MCOs), and the rebate offset associated with the increase in the rebate percentages.

In general, manufacturers that participate in the Medicaid drug rebate program are required to pay rebates for covered outpatient drugs that are dispensed to Medicaid patients. The rebates are calculated based on formulas described in section 1927(c) of the Social Security Act. The letter provides details of changes effective Jan. 1, 2010, for single source and innovator multiple source drugs, the minimum rebate percentage is increased from 15.1 percent of the average manufacturer price (AMP) to 23.1 percent of AMP and rebates doe Medicaid MCO drugs.

Additional guidance will be issued regarding the process that will be used to offset these amounts due to the increase in the rebate percentages. If you have general questions regarding Medicaid drug provisions in the new legislation, please send them to the drug policy e-mail box at RxDrugPolicy@cms.hhs.gov. If you have specific questions regarding the guidance described in this letter, please contact Larry Reed, director, Division of Pharmacy at 410-786-3325 or by e-mail at larry.reed@cms.hhs.gov.

CMS Letter to State Medicaid Directors