Health Industry Washington Watch : Washington DC Healthcare Industry Law Firm : Reed Smith : Health Industry Washington Watch : Regulations, Medicare/Medicaid, Governmental Organizations

The OIG has created a “spotlight page” on its website to highlight its reports and findings involving the Medicaid drug rebate program. The page features comparisons of drug spending under Medicaid and Medicare Part D, manufacturer compliance with Average Manufacturer Price reporting requirements, manufacturer development of new versions of existing brand-name drugs to minimize rebate obligations, and state collection of drug rebates, among other issues. Another new spotlight page concentrates on OIG investigations involving the IHS program. Previous OIG spotlight pages have focused on independent diagnostic testing facilities, hospice care, power wheelchairs, and Medicaid personal care services. 

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The HHS Office of Inspector General (OIG) has issued two recent reports on the Medicaid drug rebate program. In “Nationwide Rollup Report for Medicaid Drug Rebate Collections," a follow-up to a 2005 report, the OIG examined the extent to which states strengthened controls over the collection of rebates on single-source drugs administered by physicians, as required by the Deficit Reduction Act of 2005. While most states established such controls, six states and the District of Columbia did not establish recommended controls and therefore lacked adequate assurance that all drug rebates due the states were properly recorded and/or collected. The OIG also found that CMS did not have reliable drug rebate billing and collection information to properly monitor the program. The OIG recommended that CMS emphasize to the states that they must (1) submit accurate and reliable information on the Medicaid Drug Rebate Schedule; (2) place a priority on their billing and collecting of drug rebates, and (3) collect rebates for single-source drugs administered by physicians. CMS agreed with the recommendations.   In a separate report, "Medicaid Brand-Name Drugs: Rising Prices Are Offset by Manufacturer Rebates," the OIG found that while prices and payment amounts for Medicaid brand-name drugs increased by between 34% and 40% from 2005 to 2010 (compared to a 13% inflation rate over the 5-year period), these increases were offset by savings generated by the Medicaid drug rebate program. In fact, the OIG reports that Medicaid’s rebate-adjusted payment amounts for brand-name drugs actually declined at the median in 3 of 4 years, lagging behind the inflation rate (rebate data were not available for 2010). The OIG concludes that the rebate program has been effective in helping to offset increasing Medicaid drug costs.

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An HHS Office of Inspector General (OIG) report released August 16, 2011 found that Medicaid’s net unit drug costs (i.e., pharmacy reimbursement minus rebates) were much lower than under Medicare Part D because of substantially higher Medicaid rebates for brand-name drugs. Specifically, while Part D sponsors and state Medicaid agencies paid pharmacies similar prices for the top 100 brand-name drugs, Medicaid recouped 45% of its drug spending in rebates compared to Part D sponsor recoupment of 19% of their drug spending in rebates. Rebates for the top 100 generic drugs under both programs were negligible. In the report, “Higher Rebates for Brand-Name Drugs Result in Lower Costs for Medicaid Compared to Medicare Part D,” the OIG recommends that CMS continually examine differences in rebates across Medicaid and Part D.  

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The OIG has issued its 23^rd report comparing average sales prices (ASPs) to average manufacturer prices (AMPs) for Medicare Part B drugs. The latest report identifies 35 drug codes with ASPs that exceeded AMPs by at least 5% in the first quarter of 2011. Of these, 15 had AMP data for every drug product CMS used to establish rates. If reimbursement for these 15 codes had been based on 103% of the AMPs during the third quarter of 2011, as is authorized by law, the OIG estimates that Medicare spending would have been $788,000 lower in that quarter. The OIG could not compare ASPs and AMPs for another 51 HCPCS codes because AMP data were not submitted for any of the products CMS used to calculate payment, although manufacturers for 9% of the drugs had Medicaid drug rebate agreements, which require submission of AMPs. The OIG once again recommends that CMS develop a price substitution policy and lower reimbursement for drugs that exceed the 5% threshold. While CMS has not yet made changes to Part B drug reimbursement as a result of these studies, CMS’s proposed 2012 Medicare physician fee schedule rule would specify the circumstances under which AMP-based price substitutions would occur, beginning in the first quarter of 2012. Under CMS's proposal, reimbursement for 7 of the 15 drugs would have been reduced, saving an estimated $654,000 (CMS's proposed price substitution policy would not apply to codes with partial AMP data). 

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The OIG has released the March 2011 “Compendium of Unimplemented Recommendations,” which summarizes significant OIG recommendations that, if implemented, would result in cost savings and/or improvements in program efficiency and effectiveness. While the OIG recommendations address a wide range of provider and supplier types, high-priority recommendations address, among other things: hospital bad debt policy, hospice services provided to nursing facility residents; Medicare supplier enrollment standards and reimbursement policy; Medicare Advantage payment and marketing policies; Part D bid accuracy and fraud and abuse safeguards; Medicaid prescription drug reimbursement and rebate policies; and clinical investigator disclosure of financial interests.

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A new OIG report compares second-quarter 2010 average sales prices (ASP) and average manufacturer prices (AMP) and their impact on Medicare reimbursement for the fourth quarter of 2010. According to the OIG, there were 25 HCPCS codes with ASP that exceeded AMP by at least 5% in the second quarter of 2010. Of these codes, 10 had complete AMP data (i.e., AMP data for every drug product CMS used to set reimbursement). If reimbursement for all 10 codes with complete AMP data had been based on 103% percent of AMP during the fourth quarter of 2010 (as is authorized by the statute), Medicare expenditures would have been reduced by about $713,000 in that quarter. The OIG could not compare ASPs and AMPs for 69 additional HCPCS codes because AMP data were not submitted for any or all of the drug products. The OIG observes that 16% of the manufacturers that did not submit AMP data for any codes had Medicaid drug rebate agreements under which they generally were required to submit AMPs. The OIG states that it will continue to work with CMS to pursue appropriate actions against manufacturers that fail to submit required pricing data.  

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On September 28, 2010, CMS posted a letter to State Medicaid Directors on implementation of the ACA Medicaid drug rebate provisions. This guidance revises the previous policy concerning the federal offset of Medicaid prescription drug rebates, and further specifies the process CMS will use for the estimation and collection of these offsets. It also provides information on rebates for Medicaid managed care organization (MCO) drugs, MCO formularies, and the treatment of MCO physician-administered drugs. In addition, the guidance addresses manufacturer reporting requirements, the treatment of discounts under the Medicare Coverage Gap Discount Program for purposes of determining best price, and changes to Medicaid excluded drug provisions. 

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On September 28, 2010, the HHS Office of Inspector General (OIG) issued an Advisory Bulletin that notifies drug manufacturers of an OIG enforcement initiative concerning the timely submission of data under the Medicaid Drug Rebate Program, the 340B Drug Pricing Program, the Federal Upper Limit (FUL) Program, and the Medicare Part B outpatient prescription drug benefit. The Bulletin states that in light of OIG's findings that certain manufacturers have failed to submit required product and pricing data in a timely fashion, the OIG intends to pursue enforcement actions against noncompliant manufacturers as appropriate. The bulletin coincides with OIG release of a report, "Drug Manufacturers' Noncompliance With Average Manufacturer Price Reporting Requirements," which determined that in 2008, more than half of the drug manufacturers that were required to submit quarterly average manufacturer price (AMP) data to CMS failed to comply with reporting requirements in at least one quarter. In addition, more than three-quarters of manufacturers submitted late, incomplete, or no AMPs in at least 1 month of 2008. The OIG recommends that CMS take action against manufacturers that do not meet quarterly and monthly AMP data submission requirements. CMS concurred, and stated that it will begin referring manufacturers that submit incomplete quarterly and monthly data to OIG for civil money penalty consideration. The OIG "looks forward to expanding its collaboration with CMS regarding administrative remedies for noncompliance with AMP reporting requirements."  

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CMS has released information on ACA provisions that require a new minimum Medicaid rebate of 17.1% of the average manufacturer price (AMP), effective January 1, 2010, for drugs approved by the FDA exclusively for pediatric indications and for blood clotting factors. CMS also has released listings of the specific drugs impacted by these provisions. CMS also has issued Medicaid Drug Rebate Program Release No. 81, which, among other things, provides updated information on the new Medicaid rebate calculation for Single Source/Innovator Multiple Source line extension drugs in an oral solid dosage form. 

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On July 22, 2010, the Senate voted to reject House amendments to an emergency supplemental appropriations bill (H.R. 4899) that would block certain agreements in patent litigation settlements that delay generic drug market entry, and modify the definition of average manufacturer price (AMP).

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On July 1, 2010, the House of Representatives approved an amendment to a supplemental appropriations bill (H.R. 4899) that includes two provisions impacting prescription drugs. First, the House amendment includes a provision to block certain so-called “pay-for-delay” agreements in patent litigation settlements in which a brand-name pharmaceutical company compensates a generic pharmaceutical company for delays in generic entry. Second, the amendment would clarify the definition of average manufacturer price (AMP) – and thus the application of the Medicaid drug rebate statute -- for inhalation, infusion, and injectable drugs that are not dispensed through a retail community pharmacy. Note that the Senate still must approve the amendment before it can be enacted into law.

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CMS has issued guidance to State Medicaid Directors on the Medicaid prescription drug rebate provisions of the Patient Protection and Affordable Care Act (PPACA). Specifically, the letter addresses the increased rebate percentages for covered outpatient drugs dispensed to Medicaid patients, the extension of prescription drug rebates to covered outpatient drugs dispensed to enrollees of Medicaid managed care organizations, and the rebate offset associated with the increase in the rebate percentages (designed to ensure that savings resulting from the increases in the rebate percentages will flow to the federal government rather than the states). CMS also released an informational announcement on PPACA provisions impacting institutional providers. The announcement includes a brief overview of PPACA section 3401, which imposes a 0.25 percentage point reduction to the market basket updates for inpatient acute hospitals, long-term care hospitals (LTCHs), and inpatient rehabilitation facilities for fiscal year (FY) 2010, effective for discharges on or after April 1, 2010. The update also addresses PPACA sections 3137 and 10317, modifying certain hospital reclassification policies with October 1, 2009, and April 1, 2010 effective dates. While additional information will be forthcoming, CMS notes that providers will begin seeing payments under these provision in late April or early May. Finally, HHS has posted a fact sheet on the PPACA’s new temporary high risk pool program for individuals who are uninsured because of pre-existing conditions, including the estimated state allotments under this program.

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