Medicaid Drug Prices for Cancer: The Effect of the ACA Medicaid Rebate

Introduction: The Affordable Care Act (ACA) includes a provision that increases the Medicaid rebate for both brand-name and generic drugs. Starting in 2010, the Medicaid rebate increased from 15.1 to 23.1 percent of the AMP for innovator drugs, those branded drugs with a valid patent. Also, the rebate amount for generic drugs increased from 11 percent to 13 percent of the AMP per unit. The main objectives of this policy are to control Medicaid drug spending and to eliminate price discrimination generated from Medicaid’s lack of negotiating power.

Objective: It is unknown to what extent increasing the Medicaid rebate will impact oncology drug prices given that oncology drugs comprise the biggest share of prescription drug expenditures. This study examines the effect of the ACA Medicaid rebate increase on cancer drug prices after 2010.

Methods: A pre-post study design was used to evaluate the correlation between the Medicaid rebate increase and oncology drug prices after 2010. Using 2006-2013 State Drug Utilization Data, we focused on 25 top-selling branded and 10 top-selling generic drugs for cancer in 2006 and followed them through 2013. Medicaid amount reimbursed per unit from this data was used as a proxy for Medicaid price for generic drugs. Since Medicaid drug prices are subjected to changes that may be concurrent with the ACA Medicaid rebate increase and the proposed model may not be able to control for all these changes, we used wholesale acquisition cost (WAC) to measure drug price changes for branded and competitive brand–those with generic substitutes– drugs. 

Results: The results showed that Pharmaceutical firms increased oncology drug prices after the ACA Medicaid rebate provision as a mechanism to offset costs associated with increases in the rebate. Annual average costs-- adjusted for inflation-- of top-selling generic drugs for cancer has increased by $43, from $36 to $79.  Annual average costs-- adjusted for inflation-- of top-selling branded and competitive brand drugs for cancer have increased by$154, and $235 , respectively.

Discussion: The findings of this study demonstrate that the ACA Medicaid rebate increase was associated with significant increases in Medicaid drug prices and WACs. A significant increase in drug prices, especially in WACs, demonstrates that the increase in Medicaid rebate not only increases the amount of Medicaid pre-rebate reimbursement but also can increase overall prescription drug costs by increasing WACs. As expected, pharmaceutical companies would increase their drug prices to offset costs associated with increases in rebate. However, it would be hard to estimate whether the government is paying more than it expects for the ACA since rebate amounts are not available to researchers and the public.