Medicaid Drug Rebate Program
The Medicaid Drug Rebate Program is a program that includes CMS, State Medicaid Agencies, and participating drug manufacturers that helps to offset the Federal and State costs of most outpatient prescription drugs dispensed to Medicaid patients. Approximately 600 drug manufacturers currently participate in this program. All fifty States and the District of Columbia cover prescription drugs under the Medicaid Drug Rebate Program, which is authorized by Section 1927 of the Social Security Act.
The program requires a drug manufacturer to enter into, and have in effect, a national rebate agreement with the Secretary of the Department of Health and Human Services (HHS) in exchange for state Medicaid coverage of most of the manufacturer’s drugs. When a manufacturer markets a new covered outpatient drug, it must also submit product and pricing data concerning the drug to CMS via the Drug Data Reporting for Medicaid (DDR) system. This ensures that states are aware of the newly marketed drug. In addition, Section II(g) of the Rebate Agreement explains that manufacturers are responsible for notifying states of a new drug’s coverage. Manufacturers are required to report all covered outpatient drugs under their labeler code to the Medicaid Drug Rebate Program. Manufacturers may not be selective in reporting their NDC's to the program. Manufacturers are then responsible for paying a rebate on those drugs for which payment was made under the state plan. These rebates are paid by drug manufacturers on a quarterly basis to states and are shared between the states and the Federal government to offset the overall cost of prescription drugs under the Medicaid Program.
In addition to signing a national rebate agreement, drug manufacturers are required to enter into agreements with two other Federal programs in order to have their drugs covered under Medicaid: a pricing agreement for the Section 340B Drug Pricing Program, administered by the Health Resources and Services Administration, and a master agreement with the Secretary of Veterans Affairs for the Federal Supply Schedule.
Please note that in accordance with section 1927(a), in order for payment to be made available under Medicare Part B for a manufacturer’s covered outpatient drugs as defined at section 1927(k)(2), the manufacturer must enter into a rebate agreement.
The amount of rebate due for each unit of a drug is based on statutory formulas as follows:
Innovator Drugs – the greater of 23.1 % of the Average Manufacturer Price (AMP) per unit or the difference between the AMP and the best price per unit and adjusted by the Consumer Price Index-Urban (CPI-U) based on launch date and current quarter AMP.
Blood Clotting Factors – the greater of 17.1 % of the AMP per unit or the difference between the AMP and the best price per unit and adjusted by the CPI-U based on launch date and current quarter AMP.
Drugs Approved by FDA Exclusively for Pediatric Indications – the larger of 17.1 % of the AMP per unit or the difference between the AMP and the best price per unit and adjusted by the CPI-U based on launch date and current quarter AMP.
Line Extensions – For a drug that is a new formulation (line extension) of a brand name drug that is an oral solid dosage form, the rebate is the amount computed under section 1927 of the Act or, if greater, the product of:
- the AMP for the line extension drug,
- the highest additional rebate for any strength of the original brand name drug, and
- the total number of units of each dosage form and strength of the line extension drug (section 1206 of HCERA, which replaced section 1927(c)(2)(C) as added by section 2501(d) of PPACA).
Cap on Total Rebate Amount for Innovator Drugs – The limit on the total rebate amount for each innovator drug is at 100 percent of the AMP.
Non-innovator Drugs – 13 % of the AMP per unit.
Unit Rebate Amount Calculation
The Centers for Medicare & Medicaid Services' Medicaid Drug Rebate (MDR) system performs the URA calculation using the drug manufacturer's pricing. The specific methodology used is determined by law and depends upon whether a drug is classified as single source ("S" drug category), innovator multiple source ("I" drug category), non-innovator multiple source ("N" drug category), a clotting factor drug, or an exclusively pediatric drug. CMS provides this URA information to States as a courtesy; however, drug manufacturers remain responsible for correctly calculating the URA for their covered outpatient drugs.
For "S" or "I" drugs, the URA is determined through four steps or calculations. The first calculation provides the basic URA, the second provides the additional URA, the third adds the basic URA and the additional URA together to determine the total URA, and the fourth compares the total URA and the quarterly AMP to determine whether the total URA exceeds the quarterly AMP.
For "S" or "I" line extension drugs the URA is determined through three steps or calculations. The first calculation provides the Standard URA, the second provides the Alternative URA, and the third compares the Standard URA and the Alternative URA to determine the Total URA.
For "N" drugs, the URA is equal to 13% of Average Manufacturer Price (AMP). See the links in the Downloads section below for an example of an "N" drug URA calculation.
Consumer Price Index Urban Value
This consumer price index urban (CPI-U) value is used as an integral part of the computation of the unit rebate amounts for innovator drugs. It is available from the Bureau of Labor Statistics and it shows every value from 1913 to the present.
Interest Calculation for Late Rebate Payments
Interest is calculated as follows:
- Obtain yield rates of weekly auction of 13-Week Treasury bills under Investment Rate % or in the DDR.
- Determine the date range for which interest is owed beginning with the 38th day from the invoice postmark date.
- Total the yield rates of each weekly auction for the period during which interest applies.
- Divide that total by the number of yield rates (i.e., the number of weeks) to determine the average interest rate.
- Multiply the average interest rate by the amount of unpaid rebate to determine the amount of interest due.
- Divide the amount of interest due by 365 days to determine the daily interest amount due.
- Multiply the daily interest amount by the number of days for which interest is owed. This amount represents the total interest owed.
The file Drug Manufacturer Contact Information contains Optional Effective Date, Termination Date (if applicable), and Legal, Invoice and Technical Contact information for each drug company participating in the Medicaid Drug Rebate Program. A record layout for the drug manufacturer contact information is provided in the Drug Manufacturer contact information record layout.
A drug manufacturer should use the Manufacturer Contact Change Form (CMS 367(d)) to make any changes to its Legal, Invoice, and/or Technical contact information. The drug manufacturer should submit its completed 367d form to the Medicaid Drug Rebate Operations staff via fax (410) 786-0390 or email DDR@cms.hhs.gov. Note: Request for "Labeler Name" name change should be filed with the FDA before they are submitted to CMS **.
The State Contact Information file contains each State's Policy, Rebate and Technical Contact information for the Medicaid Drug Rebate Program.
A state should use the State Contact Change Form (CMS 368) to make any changes to its Policy, Rebate and/or Technical contact information. The state should submit its completed 368 form to the Medicaid Drug Rebate Operations staff via fax (410) 786-0390 or email DDR@cms.hhs.gov.
**It is our understanding that the FDA no longer accepts Form 2656 for labeler name changes; rather, such changes are now handled through electronic submission with the FDA. After a labeler has electronically filed a name change with the FDA, it should then submit a 367d form to CMS’ Medicaid Drug Rebate program (via fax or email, as described above reflecting the new labeler name, as well as any changes to the Legal, Invoice, or Technical Contact information (e.g., edits to any contact name, email address, mailing address, fax #, etc.).
Drug manufacturers who need to report or certify their data must apply for access to the Drug Data Reporting for Medicaid (DDR) System. States wishing to view select Medicaid Drug Rebate data may also apply for DDR access. Note: Access to data will be designated by each drug manufacturer's Technical Contact (TC) or state’s State DDR Contact (SDC). To request access to DDR, please see the instructions, contact your TC/SDC or email the DDR Operations Team at DDR@cms.hhs.gov.
Questions on the Medicaid Drug Rebate Program? Email MDROperations@cms.hhs.gov.
Page last updated on November 24, 2017