Next Steps in Improving Medicaid Prescription Drug Policy

In Chapter 1, the Commission makes two recommendations aimed at (1) supporting states in their efforts to develop appropriate prescription drug coverage criteria and (2) increasing Medicaid rebates for outpatient prescription drugs, effectively reducing spending on these  drugs, which are expected to experience one of the largest growth rates among health care goods and services over the next 10 years.

In its first recommendation, the Commission addresses Medicaid pharmacy and medical directors’ concerns regarding the need to cover new drugs as soon as they enter the market—particularly when these are first-in-class drugs or are novel, complex treatments. The Commission recommends that Congress amend the Social Security Act to allow states to exclude or otherwise restrict coverage of a covered outpatient drug for 180 days after a new drug or new formulation of a drug has been approved by the Food and Drug Administration and entered the market.

The Commission’s second recommendation concerns the rebate cap under the Medicaid Drug Rebate Program. Under current law, rebates are limited to 100 percent of the average manufacturer price. A drug is likely to reach the rebate cap only if its price increases substantially over the rate of inflation. The Commission recommends that Congress amend the Social Security Act to remove the cap on Medicaid drug rebates, which would lead to higher rebates on drugs with large price increases, creating savings for Medicaid that would allow states to maintain the same level of drug coverage at lower cost.