Department of Health and Human Services 
OFFICE OF 
 
INSPECTOR GENERAL 
 
 
 
 
 
 
M R
EDICAID  EBATES FOR 
 
 
B -N D
RAND AME  RUGS 
 
 
E P D R
XCEEDED  ART    EBATES 
 
  S M  
BY A  UBSTANTIAL  ARGIN 
 
Daniel R. Levinson   
Inspector General  
 
April 2015 
OEI-03-13-00650   
   
EXECUTIVE SUMMARY:  MEDICAID REBATES FOR BRAND-NAME DRUGS 
EXCEEDED PART D REBATES BY A SUBSTANTIAL MARGIN 
OEI-03-13-00650 
 
WHY WE DID THIS STUDY 
Drug rebates reduce the program costs of both Medicare Part D and Medicaid.  Medicaid rebates are  
defined by statute and include additional rebates when prices for brand-name drugs increase faster 
than inflation. In contrast, Part D sponsors (or contractors acting on their behalf) negotiate rebates 
with drug manufacturers, and there are no statutory requirements regarding the amounts of these 
rebates. A 2011 Office of Inspector General (OIG) report found that statutorily defined Medicaid 
rebates for selected brand-name drugs exceeded Part D rebates by a substantial margin.  The report 
also found that the inflation-based additional rebate, meant to protect Medicaid from large increases 
in drug prices, was the primary reason that Medicaid rebates were higher than Part D rebates.  A 
Member of Congress requested an update to the previous OIG report.  Specifically, the Member 
asked OIG to reexamine the prices and rebates under Part D and Medicaid, given the increase in 
Medicaid rebates under the Affordable Care Act, and to determine the proportion of rebate dollars 
attributed to inflation-based rebates under Medicaid. 
 
HOW WE DID THIS STUDY  
We determined total Part D and Medicaid drug expenditures and rebates in 2012.  We also 
determined total 2012 Part D and Medicaid expenditures and rebates for 200 selected brand-name  
drugs and compared the differences between the two programs.  Further, we determined whether the 
manufacturers of the selected drugs owed inflation-based rebates and the amount of these 
inflation-based rebates.  
 
WHAT WE FOUND 
Total rebates under Medicaid were substantially higher than total rebates under Medicare Part D.  
Also, Medicaids net unit costs (i.e., the pharmacy reimbursement amounts minus rebates) were 
much lower than net unit costs under Part D in 2012 for the 200 selected brand-name drugs and the 
statutorily defined Medicaid rebates exceeded Part D rebates by a substantial margin.  Further, more 
than half of Medicaid rebates owed by manufacturers for selected brand-name drugs were attributed 
to the inflation-based add-on rebates. 
 
WHAT WE CONCLUDE  
This is the second OIG evaluation examining the prices and rebates under Medicaid and Medicare 
Part D. Both evaluations demonstrate the substantial difference in rebates collected under Medicaid 
and Part D.   While we recognize the statutory limitations surrounding rebate collection under Part 
D, we encourage the Centers for Medicare & Medicaid Services and Congress to explore the costs 
and benefits of obtaining additional rebates under Part D.  Some options include an examination of 
the impact of dual eligible beneficiaries (i.e., beneficiaries eligible for both Medicare and 
Medicaid) on each programs rebate totals and an analysis of methods to protect Part D from  
significant increases in drug prices.    
   
TABLE OF CONTENTS 
 
Objectives ....................................................................................................1 

Background..................................................................................................1 

Methodology................................................................................................4 

Findings........................................................................................................6 

Total drug rebates under Medicaid were substantially higher than 
total rebates under Medicare Part D in 2012 ...................................6 

Pharmacy reimbursement was similar under Medicare Part D and 

Medicaid; however, after accounting for rebates, Medicaid net 

costs for selected brand-name drugs were much lower than Part D 

net costs............................................................................................6 

More than half of Medicaid rebates owed by manufacturers for 

selected brand-name drugs were attributed to the inflation-based 

add-on rebates ..................................................................................8 

Conclusion ...................................................................................................9 

Agency Comments and Office of Inspector General Response .....10 

Appendix....................................................................................................11
  
Agency Comments.........................................................................11 
 
Acknowledgments......................................................................................12 

 
   
   
OBJECTIVES 
1. 	  To compare the total amount of drug rebates collected by State 
Medicaid agencies to the total amount of drug rebates collected by 
Medicare Part D plan sponsors. 
2. 	  To compare pharmacy reimbursement amounts (including rebates) 
under Medicaid to pharmacy reimbursement amounts (including 
rebates) under Medicare Part D for 200 selected brand-name drugs. 
3. 	  To determine the proportion of rebates attributable to inflation-based 
rebates under Medicaid for 200 selected brand-name drugs. 
BACKGROUND 
The Patient Protection and Affordable Care Act (ACA)1 mandated that the 
Office of Inspector General (OIG) compare the prices (including rebates) 
for 200 selected drugs under Medicare Part D to the prices (including 
rebates) for these drugs under Medicaid.  In the report that fulfilled this 
legislative requirement, OIG found that Part D sponsors and State 
Medicaid agencies paid pharmacies roughly the same amounts for these 
drugs in 2009; however, statutorily defined Medicaid unit rebate amounts 
(URAs) for brand-name drugs exceeded Part D URAs by a substantial 
margin.2   The report also found that the inflation-based additional rebate 
was the primary reason that Medicaid rebates were higher than Part D 
rebates. A Member of Congress requested an update to the previous OIG 
report. The Member asked OIG to reexamine the prices (including 
rebates) under Part D and Medicaid, given the increase in Medicaid 
rebates under the ACA, and to determine the proportion of rebate dollars 
attributed to inflation-based rebates under Medicaid. 
Medicare Part D 
The Medicare prescription drug program, known as Medicare Part D, 
provides an optional prescription drug benefit to all Medicare beneficiaries 
entitled to Medicare Part A or enrolled in Medicare Part B.3 The Centers 
for Medicare & Medicaid Services (CMS) contracts with private 
companies, known as Part D plan sponsors (hereinafter referred to as 
sponsors), to provide drug coverage to the beneficiaries who choose to 
enroll in the program. In 2012, Part D drug expenditures totaled 
$66.5 billion. Sponsors offer benefits through (1) stand-alone prescription 
____________________________________________________________ 
1 P.L. No.  111-148.    
2 OIG,  Higher Rebates for Brand-Name  Drugs Result in Lower Costs for Medicaid 

Compared to Medicare Part D (OEI-03-10-00320), August 2011. 

3 The Medicare  Prescription Drug, Improvement, and Modernization Act of  2003, 
 
P.L. No. 108-173.  
Medicaid Rebates for Brand-Name Drugs Exceeded Part D Rebates by a Substantial Margin (OEI-03-13-00650)   1 
   
   
drug plans (PDPs) and (2) Medicare Advantage prescription drug plans 
(MA-PDs). Prior to 2006, low-income senior citizens and disabled 
individuals who qualified for both Medicare and Medicaid received 
outpatient drug benefits through Medicaid.  When Medicare Part D was 
implemented in 2006, these dual eligible beneficiaries began receiving 
drug coverage under Medicare.  
Medicare Part D Drug Reimbursement and Rebates. Negotiated prices 
are the basis of pharmacy reimbursement under Part D.  They are the 
amounts the Part D sponsor and pharmacy (or other network dispensing 
entity) have negotiated as the amount the pharmacy (or other entity) will 
receive for a particular drug, are reduced by price concessions that the 
sponsor has elected to pass through to Part D enrollees at the point of sale, 
and include any dispensing fees.4  The law establishing the Part D program  
expressly prohibits the Secretary of Health and Human Services 
(Secretary) from interfering in the negotiations between the relevant Part 
D parties or instituting a price structure for the reimbursement of covered 
Part D drugs.5  Every time a beneficiary has a prescription filled under Part 
D, his or her plan sponsor must submit a summary to CMS called the 
prescription drug event (PDE) record. The PDE record contains drug cost,  
payment, and utilization data that enable CMS to administer the Part D 
benefit. 
Plan sponsors must also provide CMS with information about rebates from 
drug manufacturers.  Rebates are price concessions that reduce the cost of 
the program to beneficiaries and the Government.  Sponsors are required 
to report these rebates to CMS in the Direct and Indirect Remuneration 
(DIR) Reports for Payment Reconciliation (hereafter referred to as DIR 
Reports).6  Part D sponsors report DIR data at the plan level and at the 
national drug code (NDC)  level.7    
Medicaid 
The Medicaid program provides medical assistance for certain low-income  
and medically needy individuals.  Medicaid is administered by States and 
financed using State and Federal funds. Currently, all 50 States and the 
District of Columbia (States) offer prescription drug coverage as part of 
____________________________________________________________ 
4 42 CFR   423.100.  
  
5  See  1860D-11(i) of the  Social Security Act (the  Act).   

6 See CMS, Final Medicare Part D DIR Reporting Requirements for 2012, June 7, 2013, 

p. 1.   See  also  1860D-15(f)(1)(A) of  the Act. 
   
7 See CMS, Final Medicare Part D DIR Reporting Requirements for 2012, June 7, 2013, 

pp. 12 and 20.  An  NDC is an 11-digit identifier that represents a specific manufacturer, 

product, and package size. 

Medicaid Rebates for Brand-Name Drugs Exceeded Part D Rebates by a Substantial Margin (OEI-03-13-00650)   2 
   
   
their Medicaid benefit packages. OIG estimates that Medicaid drug 
expenditures were approximately $35.7 billion in 2012.8    
Medicaid Drug Reimbursement and Rebates. State Medicaid agencies 
reimburse pharmacies for drugs dispensed to Medicaid beneficiaries.  
CMS and the States have implemented the Medicaid drug rebate program 
to reduce expenditures for Medicaid covered outpatient drugs.  Drug 
manufacturers are generally required to enter into rebate agreements with 
the Secretary and pay quarterly rebates to States for Federal payment to be 
available for covered outpatient drugs provided under Medicaid.9 As of 
December 2014, all States and approximately 600 pharmaceutical 
companies participated in the Medicaid drug rebate program.10 States 
invoice manufacturers for the units reimbursed and manufacturers then 
pay the rebates to the States. 
As of 2010, the ACA increased URAs for brand-name and generic drugs.   
The basic URA for brand-name drugs is either 23.1 percent of AMP or the 
difference between AMP and best price, whichever is greater.11    
Manufacturers are required to pay an additional rebate amount if the AMP 
for a brand-name drug has risen faster than inflation.12 The URA for 
generic drugs is equal to 13 percent of AMP.13    
 ____________________________________________________________ 
8 This estimate was calculated  from two sources:  CMSs Medicaid Budget and 
Expenditure System (MBES) and Medicaid  State utilization  data.  To calculate this 
estimate, we combined the fee-for-service Medicaid expenditures from MBES and the 
expenditures from Managed  Care Organization (MCO) records in the Medicaid State 
utilization data.  This total does not include rebates and excludes problematic MCO 
utilization data from one  State. 
9 Sections 1927(a)(1) and (b)(1) of the Act.   
10 Under this program, manufacturers must provide CMS with average manufacturer  
prices (AMPs) for their covered outpatient drugs.  The AMP is the average price paid to a 
manufacturer  of a drug in the United States by a wholesaler for drugs distributed  to  retail  
community pharmacies and by retail community pharmacies that  purchase drugs directly  
from the manufacturer, with certain exclusions.  See   1927(b)(3) and 1927(k)(1)  of the 
Act. 
11 Section 1927(c)(1) of the Act as amended  by   2501(a)  of  the ACA.  The minimum  
rebate percentage for certain brand-name  drugs (e.g.,  a clotting factor for which a 
separate  furnishing  payment is made or a drug approved exclusively for pediatric 
indications) is 17.1 percent of AMP.  Best price is defined in  1927(c)(1)(C)(i) of the  
Act as essentially the lowest price available from the manufacturer during the rebate  
period to any  purchaser in the United States, with certain exceptions. 
12 Section 1927(c)(2) of the Act.  The ACA also set a maximum rebate amount  for 
brand-name drugs at  100 percent of  AMP.  See  1927(c)(2)(D) of the Act.  
13 Section 1927(c)(3) of the Act as amended  by   2501(b) of  the ACA.    
Medicaid Rebates for Brand-Name Drugs Exceeded Part D Rebates by a Substantial Margin (OEI-03-13-00650)   3 
   
   
METHODOLOGY 
Data Collection and Analysis  
Data Collection.  We obtained from CMS the Part D PDE recordswhich 
contain Part D payment and utilization data for all covered drugs provided 
through PDPs and MA-PDswith dates of service in 2012.  Using 
payment data from the PDE records and drug-type information from two 
national drug compendia14 and Medicaid drug product data, we selected 
the 200 brand-name drugs (i.e., NDCs) with the highest Part D 
expenditures in 2012. We limited our analysis to brand-name drugs 
because our analysis indicated that brand-name drugs account for the 
majority of expenditures under Medicare Part D and Medicaid.  We  
obtained total 2012 Part D drug expenditures from the 2013 Medicare 
Trustees Report15 and total 2012 Part D rebates from DIR data in CMSs 
Health Plan Management System.  We downloaded total 2012 Medicaid 
drug expenditures from MBES and CMSs Web site, downloaded total 
2012 rebates from MBES, and obtained quarterly URAs from CMS. 
Data Analysis.  We determined total Part D and Medicaid expenditures 
and rebates for all drugs in 2012. We  also determined total 2012 Part D 
and Medicaid expenditures and rebates for 200 selected brand-name drugs.  
For each of the 200 selected brand-name drugs in each program, we 
calculated the (1) average unit reimbursement amount, (2) average URA, 
and (3) average net cost (i.e., average unit reimbursement amount minus 
the average URA) and compared the differences between the two 
programs.  Further, we determined whether the manufacturers of the 
selected drugs owed inflation-based rebates under Medicaid and, if so, the 
amount of the inflation-based rebates.16    
Limitations 
The findings in this report related to the selected drugs apply only to those 
drugs and are not projectable to other drugs.  We did not verify the 
accuracy or completeness of data from the drug compendia or of Medicare 
or Medicaid data from CMS.  The prices that serve as the bases for 
Medicaid rebate data are subject to revision.  The Medicaid rebates we 
calculated are rebates owed by manufacturers and not necessarily the 
amounts collected by the States; the rebates reported under Part D 
represent rebates paid as well as rebates that are expected for the 
____________________________________________________________ 
14 The compendia were First Databank and  Red Book. 
15  2013  Annual  Report of the Boards of  Trustees of the Federal Hospital Insurance and  
Federal Supplementary Medical Insurance Trust Funds. 
16 To do this, we calculated the quarterly base rebate amount  for each brand-name drug  
and subtracted  it from the drugs quarterly URA.  
Medicaid Rebates for Brand-Name Drugs Exceeded Part D Rebates by a Substantial Margin (OEI-03-13-00650)   4 
   
   
applicable year. We did not include supplemental Medicaid rebates17 or 
nonrebate DIR totals in the analysis. 
Standards 
This study was conducted in accordance with the Quality Standards for 
Inspection and Evaluation issued by the Council of the Inspectors General 
on Integrity and Efficiency.  
   
____________________________________________________________ 
17 Therefore, this analysis provides a low estimate of total rebates available through  
Medicaid.   
Medicaid Rebates for Brand-Name Drugs Exceeded Part D Rebates by a Substantial Margin (OEI-03-13-00650)   5 
   
   
FINDINGS 
Total drug rebates under Medicaid were substantially 
higher than total rebates under Medicare Part D in 
2012 
Although Medicaid drug expenditures were much lower than Medicare 
Part D expenditures in 2012 ($35.7 billion vs. $66.5 billion), Medicaid 
rebates substantially exceeded Part D rebates ($16.7 billion vs. 
$10.3 billion). As a result, rebates were a substantially higher percentage 
of expenditures in the Medicaid program. In 2012, rebates accounted for 
47 percent of Medicaid expenditures, whereas rebates totaled 15 percent 
of Part D expenditures. See Figure 1 for a comparison of expenditures and 
rebates under Medicaid and Part D. 
Figure 1. Medicaid and Medicare Part D Drug Expenditures and Rebates  
  
  $70 
$60 
Medicaid 
 
s)  $50 
n
  billio $40  Medicare Part D 
n 
s (i $30 
  al
Tot $20 
  $10 
$0 
  EMxepdeincadiidtu res  MediRcaerbea tPeasr t D 
 
 
Sources:  OIG analysis of 2012 MBES  data, 2012 State Medicaid utilization and rebate data, the 2013 Annual 
Report of the Boards of Trustees of the Federal Hospital Insurance and  Federal Supplementary Medical Insurance  
Trust Funds, and  2012 Part D DIR reports.   
Pharmacy reimbursement was similar under Medicare 
Part D and Medicaid; however, after accounting for 
rebates, Medicaid net costs for selected brand-name 
drugs were much lower than Part D net costs  
Although average Part D and Medicaid reimbursement amounts for most 
of the 200 selected brand-name drugs under review were similar, Medicaid 
unit rebates for these drugs were substantially higher than those under 
Part D. Additionally, Medicaids net unit costs (i.e., pharmacy 
reimbursement minus rebates) were much lower than net unit costs under 
Medicaid Rebates for Brand-Name Drugs Exceeded Part D Rebates by a Substantial Margin (OEI-03-13-00650)   6 
   
   
Part D.18  The difference between the average Part D and Medicaid unit 
reimbursement amounts for over two-thirds (135 of 200) of the 200 
selected brand-name drugs was less than 2 percent.  Average pharmacy 
reimbursement differed by more than 2 percent and less than 5 percent for 
an additional 46 of the selected drugs. 
However, Medicaid URAs for selected brand-name drugs were 
substantially higher than Part D URAs  
Overall, Medicaid URAs were three times higher than Part D unit rebate 
amounts at the median for the selected brand-name drugs under review.19   
For 138 drugs, manufacturers owed at least twice as much per unit in 
Medicaid rebates in 2012 compared to amounts paid per unit under Part D.  
For 37 of these drugs, Medicaid URAs were over 10 times higher than 
Part D URAs. Conversely, Part D URAs exceeded Medicaid URAs for 
just two of the selected brand-name drugs under review.  See Table 1 for 
additional information on rebates under Part D and Medicaid.   
Table 1.  Comparison of URAs  Under Medicaid and Part D for Selected Brand-Name  
Drugs  
Difference in URA*   Number of Drugs 
Medicaid more than 10 times higher than Part D   37 
Medicaid 6 to 10 times higher than Part D   21 
Medicaid 3 to 6 times higher than Part D   35 
Medicaid 2 to 3 times higher than Part D   45 
Medicaid up to 2 times higher than Part D   42 
Medicaid lower than Part D   2
        Total number of drugs   182** 
Source:  OIG analysis of 2012 Medicaid utilization and Part D PDE data. 

*Each range does not include the  lower endpoint.   

**See footnote 19. 

Medicaid net costs for selected brand-name drugs were much 
lower than Part D net costs 
Medicaids net unit costs for selected brand-name drugs (i.e., pharmacy 
reimbursement minus rebates) were much lower at the median than net 
unit costs under Part D in 2012. In fact, after accounting for rebates, 
Medicaid net unit costs were less than half of Part D net unit costs for 
110 brand-name drugs.  Medicaid net unit costs exceeded Part D net unit 
costs for only five brand-name drugs.     
____________________________________________________________ 
18 This is generally similar to the results of our previous work that compared 
reimbursement and rebates from 2009.  See  OIG, Higher Rebates for Brand-Name  Drugs 
Result in Lower Costs for Medicaid Compared to Medicare Part D (OEI-03-10-00320), 
August 2011. 
19  We excluded  18 drugs from this portion of  the analysis because their Part D rebates 
totaled less than  0.1  percent of expenditures.   
Medicaid Rebates for Brand-Name Drugs Exceeded Part D Rebates by a Substantial Margin (OEI-03-13-00650)   7 
   
   
More than half of Medicaid rebates owed by 
manufacturers for selected brand-name drugs were 
attributed to the inflation-based add-on rebates 
In 2012, the basic URA for a brand-name drug was generally the greater of 
23.1 percent of the AMP or the difference between the AMP and best 
price. If the AMP for a brand-name  drug rose faster than inflation, then 
the drugs manufacturer owed an additional rebate over and above the 
basic rebate. According to our calculations, manufacturers owed this 
additional rebate in at least one quarter of 2012 for 191 of the selected 
200 brand-name drugs under review.  In the aggregate, 54 percent of the 
total Medicaid rebates owed by manufacturers for the 200 selected brand-
name drugs under review ($4.9 billion out of $9.1 billion) can be 
attributed to AMPs rising faster than inflation (see Figure 2).   
Figure 2.  Inflation-Based Rebates as a Percentage of Total Rebates for Selected  
Drugs   
Base Rebates  Inflation-Based Rebates 
$4.2 billion  $4.9 billion                       
(46 percent)  (54 percent) 
Source:  OIG analysis of 2012 Medicaid rebate and utilization data. 
The base Medicaid URA by itself exceeded the Part D URA for 
most selected drugs 
The base Medicaid URA by itself exceeded the Part D URA for 141 of the 
selected brand-name drugs.20   The addition of the inflation-based rebate 
further magnified the difference.  The add-on URA alone exceeded the 
Part D URA for 120 selected brand-name drugs and was at least double 
the Part D URAs for 72 of these drugs. 
   
____________________________________________________________ 
20  We excluded  26 NDCs from this portion of the analysis because the Part D rebates 
totaled less than  0.1 percent  of Part D expenditures and/or the drug  was not associated 
with Medicaid add-on rebates.    
Medicaid Rebates for Brand-Name Drugs Exceeded Part D Rebates by a Substantial Margin (OEI-03-13-00650)   8 
   
   
CONCLUSION 
Drug rebates reduce the program costs of both Medicare Part D and 
Medicaid. Medicaid rebates are defined by statute and include additional 
rebates when prices for brand-name drugs increase faster than inflation.  In 
contrast, Part D sponsors (or contractors acting on their behalf) negotiate 
rebates with drug manufacturers, and there are no statutory requirements 
regarding the amounts of these rebates. In fact, the law establishing the 
Part D program expressly prohibits the Government from instituting a 
price structure for the reimbursement of covered Part D drugs. 
We found that Part D sponsors and State Medicaid agencies paid 
pharmacies similar amounts for most brand-name drugs under review.  
However, Medicaid rebates for brand-name drugs exceeded Part D rebates  
by a substantial margin.  Additionally, Medicaids net unit costs (i.e., 
pharmacy reimbursement minus rebates) were much lower than net unit 
costs under Part D in 2012 for nearly all selected drugs.  Also, more than 
half of Medicaid rebates owed by manufacturers for selected brand-name  
drugs were attributed to the inflation-based add-on rebates.  
A major driver of the higher Medicaid rebates was the additional amount 
owed when prices for brand-name drugs increase faster than inflation.  
This rebate not only produces additional Medicaid rebates, but also helps  
protect the program from increased costs when manufacturers raise prices.   
The Part D program does not contain a similar provision.   
This is the second OIG evaluation that demonstrates the substantial 
difference in rebates collected under Medicaid and Medicare Part D.  
While we recognize the statutory limitations surrounding rebate collection 
under Part D, we encourage CMS and Congress to explore the costs and 
benefits of obtaining additional rebates under Part D.  Some options 
include an examination of the impact  of dual-eligible beneficiaries on each 
programs rebate totals and an analysis of methods to protect Part D from  
increases in drug prices. 
   
Medicaid Rebates for Brand-Name Drugs Exceeded Part D Rebates by a Substantial Margin (OEI-03-13-00650)   9 
   
   
AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL  
RESPONSE 
CMS responded that section 1860D-11(i)(1) of the Act states that CMS 
may not interfere with the negotiations between drug manufacturers and 
pharmacies and PDP sponsors.  CMS stated that consequently, it cannot 
interfereabsent new legislative authorityin the rebate negotiations 
between Part D sponsors and drug manufacturers to secure additional 
rebates. OIG recognizes the statutory limitations surrounding rebate 
collection under Part D and continues to encourage CMS and Congress to 
explore the costs and benefits of obtaining additional rebates under Part D.    
We did not make any changes to the report on the basis of CMSs 
comments. For the full text of CMSs comments, see the Appendix. 
   
Medicaid Rebates for Brand-Name Drugs Exceeded Part D Rebates by a Substantial Margin (OEI-03-13-00650)   10 
  APPENDIX 
Agency Comments 
DEPARTMENT OF HEALTH & HUMAN SERVICES 
Centers for MedirAre & Medicaid SoiVICos 
------------------------------------------
Admi11istrator 
NOV 24 2014  Washington, DC 20201
TO: 	 Daniel R. Levinson 
lnspe<;tor General 
FROM: 	 l\l!'llh1yn tavenner 
Adm;nlstrator 
Centers fur Medicare & Medicaid Services 
SUBJECT: Otlice of Inspector General (OIG) Draft Report: "Update: Higher Drug Rebates 
Result in Lower Costs for Medicaid Compared to Medicare Part D" (OEI-03-13-00650) 
The Centers for Medicare and Medicaid Services appreciates the opportunity to review and 
comment on the OIG's draft report. The Part D program has significantly outperformed cost 
estimates, resulting in lower than expected premium levels since the inception of the program. 
Additionally, starting in 2011, brand drug manufacturers provide a 50 percent discount for their 
products to beneficiaries in the Part D coverage gap phase of the benefit. 
As tllis report discussed, minimum drug manufacturer rebates under the Medicaid program are 
defined by statute whereas similar rebates under the Medicare Part D program are determined 
solely through negotiations between drug manufacturers and Part D sponsors.  However, Section 
!8600-ll(i)( 1) of the Social Security Act states that CMS "may not interfere with the 
negotiations between drug manufacturers and pharmacies and PDP sponsors." Consequently, 
absent new legislative authority, CMS cannot interfere in the rebate negotiations between Part D 
sponsors and drug manufacturers to secure additional rebates. 
The Part D program has significantly outperformed cost estimates, resulting in lower than 
expected premium levels since the inception of the program. Additionally, starting in 20 II, 
brand drug manufacturers provide a 50 percent discount for their products to beneficiaries in the 
Part D coverage gap phase of the benefit. 
Thank you for the opportunity to review and comment on this draft OIG report. 
Medicaid Rebates for Brand-Name Drugs Exceeded Part D Rebates by a Substantial Margin (OEI-03-13-00650)  11   
   
ACKNOWLEDGMENTS 
This report was prepared under the direction of Robert A. Vito, Regional 
Inspector General for Evaluation and Inspections in the Philadelphia 
regional office.  
Edward K. Burley served as the team leader for this study.  Other Office 
of Evaluation and Inspections staff from the Philadelphia regional office 
who conducted the study include Stefanie  Vance.  Central office staff who 
provided support include Eddie Baker, Meghan Kearns, and 
Christine Moritz.   
 
Medicaid Rebates for Brand-Name Drugs Exceeded Part D Rebates by a Substantial Margin (OEI-03-13-00650)   12 
   
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amended, is  to protect the integrity of the Department of  Health and Human Services  
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