Reasons to prepare now for the 2024 Medicaid rebate cap removal

Does it feel like proposed Medicaid rule changes are too far in the future to think about? Or the proposed changes appear so dramatic that it seems unlikely to pass into law, so there’s little need to consider pricing strategy and product portfolio changes. In reality, it’s risky for drug manufacturers to wait. Many of these changes can have significant impacts and lead to sizable revenue leakage if you aren’t prepared. One 2024 rule change will remove the Medicaid rebate cap, which has the potential to significantly increase your total Medicaid liabilities.

Currently, the Medicaid rebates that drug manufacturers pay are capped at the quarterly Average Manufacturer’s Price (AMP) for any given drug. Meaning, in theory, the most that a manufacturer would end up paying in Medicaid rebates would be equivalent to the average price the manufacturer sells the drug for. While this is certainly not an ideal situation, it does provide some measure of protection for the manufacturer.

In March of 2021, President Biden signed the American Rescue Plan Act, which contained a provision eliminating the cap on the total Medicaid Unit Rebate Amount. Therefore, the total Unit Rebate Amount or URA (which is the base URA + Inflationary Penalty) for a drug may exceed the quarterly AMP. Beginning January 1st of 2024, the previous rule that limited the URA to AMP will cease to exist. This change has the potential to significantly impact your profitability as a drug manufacturer.

Let’s consider a basic example to illustrate how this rule could have a negative effect on a drug manufacturer’s profitability:

In this example, prior to the American Rescue Plan Act, the URA would be capped at the quarterly AMP value of $100. However, once the rule change goes into effect, the manufacturer of Drug A will now owe Medicaid an additional $15 per script. Take a minute to grasp this—this means it’s now possible that a manufacturer could be paying rebates to Medicaid that are above and beyond their own sale price of the drug. It goes without saying that this could dramatically influence profitability for your organization.

To avoid any surprises in 2024, it is best to evaluate your product portfolio now.
  • Do you have any drugs that are currently experiencing large inflationary penalties due to a low Baseline AMP value?
  • Do you have brand drugs with a very low Best Price that could also be at risk of additional inflationary penalties?

If so, carefully evaluate prices and Medicaid computations now to assess the potential impact to your bottom line and make necessary adjustments to help avoid revenue leakage in the future.

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