House Set To Act on Bill that Could Result in Higher Medicaid Rebates and 340B Discounts

The U.S. House Energy and Commerce Committee is scheduled to mark up COVID-19 relief legislation today with language that could cause pharmaceutical manufacturers to owe states Medicaid drug rebates worth more than a drug’s average manufacturer price (AMP).

The language is in the Medicaid subtitle of the Democratic-controlled E&C committee’s draft pandemic relief bill. Last week, House and Senate Democrats passed budget reconciliation bills, with the goal of tucking Democratic-approved COVID-19 relief in the final version and getting it passed by the Senate on a simple majority vote, rather than by filibuster-proof 60-vote supermajority. The E&C panel and other House committees are writing and voting on the parts of the relief bill under their jurisdictions. House Speaker Nancy Pelosi (D-Calif.) said last week she hoped to send the House bill to the Senate by the end of this month.

According to Michael McCaughan of drug manufacturer consulting firm Prevision Policy, the E&C committee’s Medicaid rebate language “restores the Medicaid rebate formula for inflation” to as it was before the Affordable Care Act, “whereby manufacturers with sufficient histories of inflation can owe rebates over 100 percent” of AMP. “If this passes, some manufacturers will end up owing more in Medicaid rebates than the cost of the drug.”

The formulas for calculating Medicaid rebates and 340B ceiling prices use the same drug price and rebate percentage variables. However, a 2017 340B program regulation stipulates that when 340B ceiling price formula would result in a ceiling price of zero, the manufacturer should charge $0.01.

Both McCaughan and King & Spalding Partner John Shakow, who also represents drug manufacturers, said they assume the U.S. Health Resources and Services Administration (HRSA) under the Biden administration will leave the 340B “penny pricing” policy in place if the E&C committee’s new Medicaid rebate language becomes law.  It is very likely that 340B providers will push to have the provision apply to them.

Shakow said the committee’s language “profoundly undermines” the compact between the federal government and drug manufacturers undergirding the Medicaid drug rebate program, now in its 30th year. If it becomes law, he predicted, “it certainly will lead manufacturers at the margins to leave” the program.

“If manufacturers leave the Medicaid program, however, they won’t be obliged to offer discounts to 340B,” Shakow continued. “So on net, I’d say this development has the potential to be harmful to 340B entities.”

340B providers may not agree with that analysis.  They are likely to argue that going back to the old formula makes sense and that drug companies should be penalized further if they significantly raise prices. They are also likely to make the case that drug manufacturers will still come out ahead since the commercial and Medicare markets are much bigger.

The three manufacturers of insulin sold in the U.S.—Eli Lilly, Sanofi, and Novo Nordisk—have “aggressively” raised the prices of their insulin products in recent years, the U.S. Senate Finance Committee concluded in a recent report. If the E&C drug rebate language becomes law, they might be among the first manufacturers to feel its sting.

On a separate front, the three insulin manufacturers are at the center of the battle over manufacturers’ obligation to offer 340B pricing on drugs dispensed by contract pharmacies.

McCaughan said drug manufacturers likely will try to get the rebate language removed from the COVID-19 relief bill. If that’s impossible, he said, they might try to replace it with language from the Senate Finance drug pricing bill from the last session of Congress. That language would have capped Medicaid rebates at 125 percent of AMP for products currently on the market, with no percentage limit for newly marketed drugs.

The current language reportedly has been “scored” as generating between $14 billion and $20 billion annually in savings to the federal government. The E&C committee reportedly will use those savings to pay for other Medicaid-related provisions in its pandemic relief bill.

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