In April 2015, the Office of the Inspector General (OIG) of the U.S. Department of Health & Human Services issued a report analyzing and comparing drug rebates collected by State Medicaid programs and Medicare Part D plan sponsors. Requested by a Member of Congress, the analysis concluded that there were substantial differences in the rebate amounts collected under Medicaid and Medicare Part D.  It was the second such report; the OIG conducted a similar analysis in 2011.

OIG analyzed total Part D and Medicaid expenditures and rebates for 200 selected brand-name drugs in 2012, calculating the average unit reimbursement amount, average unit rebate amount (URA) and average net cost. It then compared the differences between Medicaid and Medicare Part D, and also reviewed inflation-based rebates under Medicaid for the selected drugs.  While Medicaid drug expenditures were much lower than Medicare ($35.7 billion vs. $66.5 billion), the rebates for Medicaid were significantly higher than Part D rebates ($16.7 billion vs. $10.3 billion).

OIG found that pharmacy reimbursement was similar under Medicare Part D and Medicaid, but because Medicaid obtained substantially higher rebates, Medicaid’s net unit costs were lower than net unit costs under Medicare for the selected drugs.  Medicaid URAs were three times higher than Part D unit rebate amounts at the median for the selected drugs.

Federal law defines Medicaid rebate amounts and sets forth additional rebates for brand-name drugs when their prices increase faster than inflation.  There are not, however, statutory rebate requirements for Part D drugs, and Part D sponsors (or contractors acting on their behalf) negotiate any rebates for Part D drugs.  As the Centers for Medicare & Medicaid Services (CMS) noted in their response to the OIG report, Section 1860D-11(i) of the Social Security Act states that CMS may not “interfere with the negotiations between drug manufacturers and pharmacies and [Part D plan] sponsors,” nor may it require a “particular formulary or institute a price structure for the reimbursement of covered part D drugs.”

OIG acknowledged the statutory limitations, but concluded the report by encouraging CMS and Congress to continue reviewing “costs and benefits of obtaining additional rebates under Part D.”  The OIG’s report can be found here (last accessed on May 4, 2015).