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.

In 2024, the previous rule that limited the URA to AMP will cease to exist.

How will the AMP cap removal provision impact drug manufacturers?

This change has the potential to significantly impact profitability for a drug manufacturer, which may in turn drive product portfolio changes and updates to your Medicaid rebate liability forecasts. Some products could see rebates that are higher than the WAC (Wholesaler Acquisition Cost) of the drug.

Who’s most at risk for impacts from the AMP cap removal?

Pharmaceutical drugs with a higher risk for incremental revenue leakage from the cap removal include the following:

• Drugs currently experiencing inflationary penalties due to a low Baseline AMP value
• Brand drugs with a low Best Price

How do I understand my risks and/or liabilities related to the AMP cap removal?

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.

With the elimination of the cap on the total Medicaid Unit Rebate Amount in 2024, the total Unit Rebate Amount or URA (which is the base URA + Inflationary Penalty) for a drug may exceed the quarterly AMP. With rebates becoming potentially more favorable on certain drugs, it is also challenging to predict the purchasing behavior of pharmacies and state programs issuing rebates. It is possible that removal of the cap will drive increased utilization.

For a detailed, numeric example of how this ruling can negatively impact a drug manufacturer’s profitability, please read our original blog: Reasons to Prepare Now for the 2024 Medicaid Rebate Cap Removal.

What actions should I be taking right now?

Drug manufacturers should prepare for the 2024 provision as follows:

• Carefully evaluate your drug prices and Medicaid calculations by product
• Assess the potential impact to your bottom line and make necessary adjustments to your product portfolio help avoid / limit revenue leakage in the future
• Update your Medicaid rebate forecasts accordingly

For expert support and guidance in minimizing incremental liability and revenue leakage from the AMP Cap Removal, contact Prescription Analytics today.