Effect of Drug Manufacturers' Rebates on Ohio Health Plans Pharmaceutical Expenditures
- Presenter:
Chair: Marisa Domino; Discussant: TBA Mon June 5, 2006 10:45-12:15 Room 121
Background: Medicaid federal drug rebates (i.e. retroactive discounts) were implemented in 1991, and Ohio Health Plans (OHP) -the program that manages Ohio Medicaid- supplemental rebates were implemented in April 2003. Manufacturers that sign a federal rebate agreement are eligible for federal Medicaid reimbursement for their products. Manufacturers of originator drugs that negotiate supplemental rebates with OHP are included in Ohio’s Medicaid prefer drug list (i.e. these drugs are covered without prior authorization). Objectives: The objective of the study is to evaluate the effect of manufacturers’ drug rebates on OHP drug expenditures. Material and Methods: The sources of data used in the study included OHP drug claim database, CMS, and other public sources. Drug expenditures trends for 1982-2003 were calculated and projected for 2004-2005. Drug expenditures for 2003 were calculated from the OHP claim database, and estimated rebates were subtracted from the fee for service (FFS) drug reimbursement in order to estimate the net cost of the pharmacy program.
Results: OHP’s FFS drug expenditures reached $1.7 billion in 2003. Originator drugs represented 85.7% and generic drugs 14.3% of the drug expenditures. The average expenditure per claim was $96.74 for originator drugs and $16.13 for generic drugs.
Manufacturers’ rebates provided an estimated reduction in drug expenditures of $407 million, representing 23.9% of FFS drug expenditures. OHP’s rebates included federal rebates (providing a reduction of 20.6% in drug expenditures) and state supplemental rebates (providing a reduction of 3.3%). Medicaid rebates favorable compare with rebates for the largest PBM in the U.S. that represented 8.4% of drug expenditures in 2003.
The average rebate for originator drugs was estimated at 27.33% of expenditures in those drugs, in contrast with the 5.5% estimated rebate for generic drugs. The implementation of the federal rebate generated an 8.8% reduction in the cost per Rx in 1991. Nevertheless, the cost per Rx had increased 41.2% during the three-year period (1988-1990) prior to the rebate, especially in the 1989, when prices went up by 44.6%. The implementation of the state rebate generated an increase of 0.1% in the cost per Rx in 2003. The cost per Rx had increased 34.1% during the three-year period (2000-2003) prior to this rebate, with an increase of 13.4% in 2002.
Conclusions: Ohio Medicaid pharmaceutical expenditures have doubled every five years during the period 1990-2003. Manufacturers’ rebates have not curved the upward trend in OHP drug expenditures. Medicaid federal and state rebates reduce the prices paid by the Medicaid program in relation to the prices listed by pharmaceutical companies. Nevertheless, the rebate, which is based on the AMP, creates an incentive for manufacturers to raise their prices before the rebate implementation.
In spite of the large rebates from utilization of originator drugs, substantial savings would derive from increasing the market share of generic drugs.
