The price increases for brand-name drugs covered by Medicaid outpaced the inflation rate from 2005 to 2010, yet rebates paid by the manufacturers as part of the Medicaid drug rebate program offset the increases, according to a report from HHS' Office of the Inspector General (PDF).

The report found that whole acquisitions costs rose 34%, average manufacturer prices increased by 40%, and Medicaid payment amounts went up 39% during the five-year period. During the same period, the inflation rate increased by 13% based on the consumer price index.

When the OIG factored in savings generated by the Medicaid drug rebate program, it found that the prices for brand-name drugs declined in three of four years (2005 to 2009) surveyed and “lagged” behind the inflation rate. The OIG said the rebate data for 2010 was not available.

“Taken as a whole, the results of our study indicate that price increases for brand-name drugs may not necessarily translate to corresponding increases in Medicaid costs,” wrote the OIG authors.

The CMS said in a letter responding to the report that it believes the drug rebate program is “effective in helping to offset the increasing cost of drugs in the Medicaid program.”

Most states use wholesale acquisition costs or average manufacturer prices to define estimated acquisition cost for Medicaid drugs, according to the report. Medicaid drug spending excluding rebates was $26 million in 2009, with brand-name drugs making up about 80% of the money that is reimbursed.