New HHS proposal would shed light on cost of prescription drugs and save states and federal government money in Medicaid

The Biden-Harris Administration has made lowering prescription drug costs in America a key priority — and President Biden is continuing to deliver results. Today, the U.S. Department of Health and Human Services, through the Centers for Medicare & Medicaid Services (CMS), is proposing steps to further drive down prescription drug costs in Medicaid and build on President Biden’s executive order to lower prescription drug costs for Americans. CMS’ latest notice of proposed rulemaking (NPRM) would shed light on the actual cost of drugs covered by Medicaid. Under this proposal, Medicaid would have increased ability to hold drug manufacturers accountable for what Medicaid programs pay for drugs.

“President Biden is not only committed to protecting Medicaid, but continues to take bold actions to strengthen the program,” said HHS Secretary Xavier Becerra. “With today’s proposed rule, we are advancing unprecedented efforts to increase transparency in prescription drug costs, being good stewards of the Medicaid program, and protecting its financial integrity. This proposed rule will save both states and the federal government money.”

“This proposed rule prioritizes CMS’ role as a good steward of Medicaid dollars while also strengthening program integrity and the management of pharmacy benefits for people with Medicaid coverage,” said CMS Administrator Chiquita Brooks-LaSure. “We’re committed to preserving access to life-saving treatments and securing fiscal sustainability for the Medicaid program, which remains a lifeline for millions of people.”

Today’s proposed rule to improve the Medicaid Drug Rebate Program follows the Biden-Harris Administration’s historic creation of the Medicare Prescription Drug Inflation Rebate Program. As part of President Biden’s new prescription drug law, for the first time ever, drug companies must now pay rebates to Medicare when their prescription drug prices increase faster than the rate of inflation for certain drugs dispensed to people with Medicare.

Increase Transparency of Prescription Drug Costs

This rule would allow CMS to have more insight into what the most expensive drugs on the market today actually cost to manufacture and distribute. The proposed regulation would give CMS and states additional tools, like a drug price verification survey, which would result in greater transparency into manufacturers’ drug prices. This survey would verify drug prices to increase transparency about why certain drug prices are expensive for Medicaid and help states better negotiate what the Medicaid program pays for high-cost drugs. With this information, state Medicaid agencies would be able to operate their pharmacy programs more effectively while helping more people get vital drug treatments. This increased transparency under Medicaid would advance the Biden-Harris Administration’s efforts to complement the Inflation Reduction Act and further drive down prescription drug costs without impacting coverage of drugs for Medicaid beneficiaries. For additional information on the drug price verification survey, visit Medicaid.gov.

Increase Transparency of Managed Care Plans

Another proposed provision aims to enhance transparency into the costs of administering drug benefits in Medicaid-managed care plans. Managed care plans cover more than 75% of Medicaid beneficiaries. Managed care plan pharmacy benefit managers (PBMs) often negotiate and administer the pharmacy benefit, though there has been a lack of transparency into the amount plans have paid to PBMs for administering the drug benefit and the amount pharmacies have been paid for the drugs. This lack of transparency has raised concerns about PBMs using spread pricing arrangements to increase their profit margins by charging an MCO more for a drug than the amount a PBM pays a pharmacy. To address this issue, CMS is proposing that contracts between states, Medicaid-managed care plans, and third-party contractors, such as PBMs, reflect transparent reporting of drug payment information among third-party contractors. This proposal will help ensure that taxpayer dollars are actually going to pay for drugs and not increased profits.

Increased Transparency in Drug Classifications

The NPRM also focuses on the potential misclassification of drugs as brand name or generic. The proposed rule includes provisions to ensure states would receive the appropriate rebates to which they are entitled, since states receive a higher percentage of rebate dollars for brand-name drugs compared to generics. With increased transparency, states would be able to determine if manufacturers appropriately classified their covered outpatient drugs, and if they did not, give CMS the ability to take action to correct the misclassification.

For additional information on these and other provisions in the NPRM, please visit Federal Register. CMS looks forward to accepting public comment on the NPRM through July 25, 2023.