Understand how we got here — and how to move forward.


October 8, 2019

Trump signs drug rebate bill expected to save Medicaid $3B

Daily Briefing

    President Trump last month quietly signed into law a bipartisan bill closing a loophole in Medicaid's drug rebate program that critics say allowed drugmakers to underpay rebates to state Medicaid programs.

    Your cheat sheets for understanding health care's legal landscape

    Bill details

    The bill, introduced by Sens. Bill Cassidy (R-La.) and Maggie Hassan (D-N.H.) and called the "Fair and Accurate Medicaid Pricing Act," became law as part of a stopgap spending measure (HR 4378) that funds the federal government through Nov. 21.

    The Fair and Accurate Medicaid Pricing Act changes how drugmakers calculate the rebates they pay state Medicaid programs. Drugmakers currently determine rebates largely by using a measure called the Average Manufacturer Price (AMP). However, critics have said drugmakers can manipulate the AMP and pay lower rebates by including the list prices of brand-name drugs and authorized generics—which are lower-cost versions developed by branded drugmakers—in their calculations. In addition, drugmakers can further lower their rebates by selling their authorized generics to a subsidiary at an "artificially low price."

    The Fair and Accurate Medicaid Pricing Act closes those loopholes by no longer allowing drugmakers to include authorized generics in their calculations—a change that has been supported by the Medicaid and CHIP Payment and Access Commission, Trump, and other former presidents, including former President Barack Obama.


    The Congressional Budget Office has estimated that the Fair and Accurate Medicaid Pricing Act will save the federal government approximately $3.1 billion over the next decade.

    It is unclear how much money drugmakers could lose under the new law because their rebates are confidential, but some companies are expected to see considerable losses.

    HHS' Office of the Inspector General in April noted that an unnamed drugmaker would owe Medicaid more than $200 million in rebates if drugmakers were no longer allowed to include authorized generics in their rebate calculations, according to STAT+.


    Several observers noted that the Fair and Accurate Medicaid Pricing Act's passage largely went unnoticed, in part because Congress is considering a number of other proposals related to drug spending.

    John Rother, head of the National Coalition on Health Care, said, "It got through without anybody really waving a flag about it. There's so much activity around drug pricing, it allows the [smaller] ideas to escape a lot of attention."

    Shawn Gremminger, senior director of federal relations at Families USA, said, "I was surprised this sailed through with minimal fanfare. It shows how much pharma has on their plate right now."

    Others applauded the measure's passage.

    Jack Rollins, a senior policy analyst at the National Association of Medicaid Directors, called the policy a "net benefit for both states and the federal government."

    Sean Dickson, director of health policy at West Health, said the bill will deliver "real savings," but is "not a solution to the high cost of brand [name] drug[s] in America." He said, "That's going to require more holistic reforms."

    A lobbyist for the drug industry said the measure will affect drugmakers taking advantage of the loophole in Medicaid's drug rebate program, but will not have a substantial effect on established drugmakers that do not engage in these practices.

    However, according to STAT+, the new law will have an impact on all drugmakers selling authorized generics to Medicaid.

    A spokesperson for Pharmaceutical Research and Manufacturers of America declined to comment on the measure to STAT+.

    A spokesperson for BIO, a biotech trade group, said the group had not worked on the measure or taken a position on it (KATC, 9/26; Anderson, Becker's Hospital Review, 10/1; Hassan release, 10/26; Florko, STAT+, 10/4 [subscription required]).

    Have a Question?


    Ask our experts a question on any topic in health care by visiting our member portal, AskAdvisory.