Drug Manufacturers Face Elimination of Medicaid Rebate Cap Beginning in 2024

MM Curator summary

The Medicaid drug rebate cap is set to go away in 3 years.


The article below has been highlighted and summarized by our research team. It is provided here for member convenience as part of our Curator service.


Recently, President Joe Biden signed the American Rescue Plan Act of 2021 (the Rescue Plan), a $1.9 trillion COVID-19 relief package. We described a number of the provisions of the Rescue Plan here. The relief package includes a “sunset” provision that, effective January 1, 2024, would eliminate the statutory cap on Medicaid Drug Rebate Program (MDRP) rebate amounts by terminating Section 1927(c)(2)(D) of the Social Security Act (SSA). That provision, added by the Affordable Care Act (ACA) in 2010,1 capped MDRP rebate liability at 100% of the average manufacturer price (AMP) for a covered outpatient drug.2 Under the Rescue Plan, MDRP rebates will no longer be capped. As a result, there will no longer be a statutory limitation on the MDRP rebate amounts drug manufacturers pay to state Medicaid programs beginning in 2024.3 Accordingly, a drug manufacturer may pay more in rebates than it receives on the sale of the product. 

Discussion of removing the MDRP rebate amount cap gained national attention when the Department of Health and Human Services (HHS) included it in its May 2018 HHS Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs (Blueprint).4 HHS asked for stakeholder input regarding when the rebate cap was “a valid constraint upon the rebates manufacturers should pay” and the potential impact of removing the cap.5 Subsequently, the Medicaid and CHIP Payment and Access Commission (MACPAC) — a nonpartisan legislative branch agency that provides policy and data analysis and makes recommendations to Congress and other policymakers6 — addressed the question of potentially raising or removing the cap.7 In June 2019, for instance, MACPAC issued a report to Congress officially recommending that Congress amend Section 1927(c)(2)(D) of the SSA to remove the cap on MDRP rebates.8  

In its June 2019 report, MACPAC argued that removing the rebate cap would incentivize drug manufacturers to lower list prices and limit price increases on drugs.9 The report noted that the Congressional Budget Office (CBO) estimated that removing the rebate cap would decrease federal spending by $15 billion to $20 billion over 10 years.10 Similarly, in scoring the Rescue Plan, CBO estimated that the provision eliminating the cap would save the federal government approximately $15.9 billion over a 10-year period.11

Following MACPAC’s June 2019 recommendation, the House and the Senate each took up potential legislation on the rebate cap. In September 2019, Sen. Chuck Grassley, R-Iowa, introduced a bill that would raise the cap to 125% of AMP effective for rebate periods beginning October 1, 2022.12 In September 2019, Rep. Frank Pallone, D-N.J., introduced the Elijah E. Cummings Lower Drug Costs Now Act, HR 3, which included a provision to eliminate the rebate cap.13 Following negotiation, however, the House dropped that provision from HR 3 and left SSA Section 1927(c)(2)(D) unaltered in the House’s final version of the bill.14 That bill passed the House but did not advance in the Senate. Elimination of the rebate cap, however, influenced by these initial developments, became law under the Rescue Plan and will now take effect on January 1, 2024.

Drug manufacturers participating in the MDRP and other stakeholders should carefully evaluate the potential impact and future application of this Rescue Plan provision. This and other developments, including the changes in additional rebates for line extensions, which are reported on here, are expected to lead manufacturers to consider changes in their marketing of some drug products. 

1 Patient Protection and Affordable Care Act § 2501(e), Pub. L. No. 111-148, 124 Stat. 119, 309 (2010).

2 SSA § 1927(c)(2)(D) (Maximum Rebate Amount).

3 S. Amend. 891, 117th Cong. § 9816 (2021) (amending American Rescue Plan Act of 2021, HR 1319, 117th Cong. § 3106 (2021)). The Senate version of the bill — which later passed in the House and was signed by the President — amended the effective date of the rebate cap elimination in the original House passed bill from 2023 to 2024.

4 83 Fed. Reg. 22,692, 22,698 (May 16, 2018). 


6 See About MACPAC, www.macpac.gov/about-macpac/ (accessed Mar. 17, 2021).

7 See MACPAC, September 2018 Meeting Transcript at 219–45 (Sept. 18, 2018), available at www.macpac.gov/wp-content/uploads/2018/09/September-2018-Meeting-Transcript.pdf; MACPAC, March 2019 Meeting Transcript at 4–19 (Mar. 7, 2019), available at www.macpac.gov/wp-content/uploads/2018/03/March-2019-Meeting-Transcript.pdf

8 MACPAC, Report to Congress on Medicaid and CHIP at 2 (June 2019), www.macpac.gov/wp-content/uploads/2019/06/Next-Steps-in-Improving-Medicaid-Prescription-Drug-Policy.pdf.

Id. at 3. 

10 Id. at 10.

11 Cong. Budget Off., Cost Estimate; Reconciliation Recommendations of the House Committee on Energy and Commerce (Feb. 12, 2021), available at www.cbo.gov/system/files/2021-02/EnergyandCommerceReconciliationEstimate.pdf.

12 S.R. Rep. No. 116–120, at 48 (2019), available at www.congress.gov/116/crpt/srpt120/CRPT-116srpt120.pdf.

13 165 Cong. Rec. No. H10178, available at www.congress.gov/116/crec/2019/12/12/CREC-2019-12-12-pt1-PgH10129.pdf.

14 Elijah E. Cummings Lower Drug Costs Now Act, HR 3, 116th Cong. (2019), available at www.congress.gov/bill/116th-congress/house-bill/3/text.


Clipped from: https://www.sidley.com/en/insights/newsupdates/2021/04/drug-manufacturers-face-elimination-of-medicaid-rebate-cap-beginning-in-2024