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Health care reform and prescription drug rebates

May 2, 2011 - Mary Ann Heath
Section 2501 of the Patient Protection and Afforable Care Act deals with Prescription Drug Coverage, more specifically prescription drug rebates. This section basically increases the rebate amount drug manufactures are required to pay. If this section of the bill has a profound impact on the general population, I must have missed it. Raising the amount drug manufacturers must pay may be fair, considering the racket many of them make. The additional funds produced, however, are remitted to the federal government and not directly to individuals, for whom Medicaid covers the cost of prescriptions anyway.

Drug manufacturers are required to enter into a rebate agreement, which requires them to provide state Medicaid programs with rebates for drugs it purchased for recipients. The Patient Protection and Affordable Care Act made two changes to the rebate program: it increased the minimum rebate amount and it extended the drug rebate program to Medicaid recipients in Managed Care Organizations.

Since Jan. 1, 2010, rebate amounts increased as follows (according to

• From 15.1 percent to 23.1 percent of the average manufacturer price (AMP) for brand name, single source drugs purchased by state Medicaid programs.

• From 15.1 percent to 17.1 percent of AMP for brand name drugs purchased by state Medicaid programs and are either prescribed for clotting factors or approved by the FDA for pediatric use only.

• From 11 percent to 13 percent of AMP for generic drugs purchased by state Medicaid programs.

The act also altered the calculation for line extension drug rebates. A "line extension" drug refers to newer versions and different dosages of already existing drugs. The line extension rebate is the product of:

• The AMP for the line extension drug;

• The highest additional rebate for any strength of the original brand name drugs; and

• The total number of units of each dosage form and strength of the line extension drug.

According to, brand name and generic drug manufacturers are also now required to pay rebates for beneficiaries who receive care under risk-based agreements (managed care). The site points out that prior to passage of the bill, prescription drug rebates were not applied to drugs purchased by Medicaid MCOs. "MCOs are permitted to negotiate with manufacturers and wholesalers for rebates above Medicaid's statutory rebates," reads. Prescriptions drug manufacturers are also required to pay these rebates directly to states. Under the new legislation, states are not permitted to retain the rebate amount, however, 100 percent of the amount will go directly to the federal government. Any state that receives rebates over the percentages outlined, however, can retain those funds. Prior to this legislation, the federal government shared the rebate amount with states.

Americans depend on prescription drugs for a wide variety of reasons — many of them life-extending. According to a study released by the Department of Health and Human Services, at least half of all Americans take at least one prescription drug. The study also found, no surprise, that prescription drug use increases with age. Five out of every six people 65 and older are taking at least one medication and almost half of the elderly take three or more, the report finds.

A different study completed by the Centers for Disease Control and Prevention, found that Americans were more likely to use prescription drugs if they had a "regular place for health care," insurance and a prescription drug health benefit. (This seems like a no-brainer).

On a personal note, for those of you that follow my posts regularly, this week's blog is a little tardy. This is not because I have given up, and scattered the pages of the bill to the wind (though I have been tempted). However, I do have a few extra projects I am undertaking currently, which is keeping me plenty busy. (Though I am not complaining, extra work is good for everyone!) In addition, I have also been blessed with the fatigue and nausea of early pregnancy...which will subside any day now, I hear.

Mary Ann Heath has been reading and blogging about the Patient Protection and Affordable Care Act since January. Her goal is to read all 906 pages of the bill in one year.


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