The Medicaid and CHIP Payment and Access Commission called on Congress to make key changes to the Medicaid drug rebate program to cut spending on drugs for low-income people.
Under the program, Medicaid covers drugs if the pharmaceutical companies are willing to have a national rebate agreement with HHS. Manufacturers must pay a rebate on drugs purchased by Medicaid programs.
MACPAC claimed Friday in its annual report that Congress could improve the program with two tweaks.
The first change would eliminate a statutory requirement that allows drug companies to calculate the average manufacturer price using both branded drug and so-called "authorized" generic drug prices. Authorized generics are drugs that are produced by the same company that makes the branded drug. They are identical in formulation but have different labels.
This change would ensure that manufacturer rebates are based on the price of the drug available to wholesalers and pharmacies, MACPAC said in its report.
The proposal is key to improving the operation and integrity of the Medicaid drug rebate program, according to Kristi Martin, senior vice president at consulting firm Waxman Strategies.
"Manufacturers have used the rebate program to introduce an authorized generic with a lower required rebate, allowing them to maintain their monopoly position," Martin said.
"The proposal would ensure that the (average manufacturer price) is reflective of the actual price of brand-name innovator drug products available to wholesalers and that the rebate is appropriately applied," she said.
Factoring in authorized generic pricing can substantially reduce the amount in rebates paid out by a drugmaker. This recommendation is expected to reduce federal drug spending by increasing Medicaid drug rebates from manufacturers.
The Congressional Budget Office estimates that this recommendation would decrease federal spending by up to $50 million in the first year and just under $1 billion over five years.
Under the second proposal, MACPAC urged Congress to give the HHS secretary authority to impose financial sanctions on drug manufacturers if they don't provide accurate drug classification data.
The amount of the rebate a drug company pays depends on how a drug is classified. For instance, they pay less for so-called non-innovator drugs, such as generics. However, they pay more for innovator or brand-name drugs.
Last year, HHS' Office of Inspector General found that Mylan misclassified EpiPen as a non-innovator drug for years. Mylan had to repay Medicaid $465 million to settle claims it underpaid rebates after the company's actions were uncovered.
The CBO has estimated that this recommendation will not affect federal Medicaid spending. However, states could receive the nonfederal share of any changes in rebate amounts.
Currently, it's unclear whether the HHS secretary can penalize noncompliant drugmakers with intermediate-level sanctions that don't shut off access to a drug, according to Tiernan Meyer, a senior manager at Avalere Health.
The secretary can halt Medicaid coverage of all of a manufacturer's drugs, but it hasn't done so because it doesn't want to take drugs away from Medicaid enrollees, Meyer said.
"The idea is to offer more moderate options," Meyer said.