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Blog
The Impact of AMP Cap Removal on Medicaid Drug Prices
Apr 24, 2023
The American Rescue Plan (ARP) Act of 2021 includes a provision that eliminates the statutory cap on rebates that drug manufacturers pay to Medicaid. Beginning in January 2024, Medicaid rebates will no longer be capped at 100 percent of the quarterly average manufacturer price (AMP)1. The Centers for Medicare & Medicaid Services’ efforts to remove the cap, whereby potentially increasing Medicaid rebates to states, is referred to as the AMP Cap removal project.
The Medicaid Drug Rebate Program currently caps rebates for single source, innovator multiple source, and non-innovator multiple source drugs at 100% of the average manufacturer price. This means that manufacturers are not required to pay any additional rebates for these drugs, even if the price of the drugs increases over time. The ARP provision would remove the 100% cap for these drugs, beginning January 1, 20242.
The elimination of the Medicaid rebate cap is a significant policy change that is expected to save the federal government billions of dollars. By increasing the amount of rebates that manufacturers pay to the government for drugs that are covered by Medicaid, it is estimated that this policy will save the government $14.5 billion in Medicaid spending between 2021 and 2030, and $17.3 billion between 2021 and 2031. These savings could be used to fund other important programs, such as education or healthcare3.
What are the implications of Medicaid cap removal?
The following equation illustrates the current Medicaid Rebate calculation:
The Medicaid Drug Rebate Program establishes the amount of the rebate that drug manufacturers are required to give to states. The calculation of rebates is divided into two parts: Base Rebate, which is determined as the greater of % of the average manufacturer price (AMP) per unit, or the difference between the AMP and the best price per unit. The second part, Additional Rebate, is adjusted by the Consumer Price Index-Urban (CPI-U). Since 2010, pursuant to Section 1927(c)(2)(D) of the Social Security Act, the total Medicaid rebate amount a drug manufacturer was required to pay was capped at 100 percent of the AMP. This implies that manufacturers who reach the rebate ceiling are exempt from further Medicaid rebates even if they raise list prices further.
This example explains the impact of AMP cap removal on a Sample Single Source (S) or Innovator (I) Drug:
In this example, under the current rule, the unit rebate amount (URA) would be capped at AMP, or $35. However, once the ARP rule goes in effect, the manufacturer will now owe Medicaid an additional $8 ($43 ‐ $35) per script. This means the manufacturer will be paying more rebates to Medicaid, and in some situations, this can even go above the manufacturer selling price.
The ARP rule will have major impact on the brand drugs whose rebates are already capped at AMP or drugs with a high list price, and generate a large rebate. Based on experience, IQVIA has observed that approximately 15-20% of brand drugs are capped at AMP.
Looking ahead
Manufacturers may experience a considerable rise in Medicaid rebate liability after the removal of the AMP cap in 2024, particularly for items with high inflation penalties that will raise the total rebate to more than 100% of AMP. Manufacturers must review and evaluate their product portfolio and develop strategies for preventing revenue leakage in the future.
Before moving forward, manufacturers should carefully consider the following factors and assess the potential impact:
- Evaluate drugs with high list price or high rebate
- Analyze products that are currently capped at AMP or very close to the cap to determine if there will be an additional impact
- Assess products that are incurring additional rebates; Is your baseline AMP low?
- Based on a product’s maturity and factors impacting net sales, determine if it is more advantageous to decrease or increase the list price
- There are some thoughts to discontinue products based on the gross-to-net
To learn more about this topic, contact Heenal Patel at heenal.patel@iqvia.com.
References
- https://www.congress.gov/bill/117th-congress/house-bill/1319/text S. Amend. 891, 117th Cong. § 9816 (2021) (amending American Rescue Plan Act of 2021, HR 1319, 117th Cong. § 3106 (2021)).
- ARP Overview CIB (medicaid.gov)
- https://www.kff.org/medicaid/issue-brief/costs-and-savings-under-federal-policy-approaches-to-address-medicaid-prescription-drug-spending/
Additional policy changes affecting the industry
Policy changes continue to impact the life sciences industry. Learn more about the Pharmacy Benefit Manager Transparency Act of 2023 and discover how you can prepare your business for the upcoming changes by reading our latest white paper.
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