Department of Health and Human Services 

OFFICE OF 

INSPECTOR GENERAL 

MEDICAID REBATES FOR 

BRAND-NAME DRUGS 

EXCEEDED PART D REBATES 

BY A SUBSTANTIAL MARGIN 

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, Medicaid’s 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 program’s 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: CMS’s 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 records—which 

contain Part D payment and utilization data for all covered drugs provided 

through PDPs and MA-PDs—with 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 CMS’s 

Health Plan Management System. We downloaded total 2012 Medicaid 

drug expenditures from MBES and CMS’s 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 drug’s 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 

Medicaid Medicare Part D 

$0 

$10 

$20 

$30 

$40 

$50 

$60 

$70 

Totals (in billions) 

Medicaid 

Medicare Part D 

Expenditures Rebates 

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, Medicaid’s 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 

Medicaid’s 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 drug’s 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 brandname 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 

Inflation-Based Rebates 

$4.9 billion 

(54 percent) 

Base Rebates 

$4.2 billion 

(46 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, Medicaid’s 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 

program’s 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 

interfere—absent new legislative authority—in 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 CMS’s 

comments. For the full text of CMS’s 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 

Washington, DC 20201 NOV 24 2014 

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 
Office of Inspector General

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amended, is to protect the integrity of the Department of Health and Human Services 

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