Have you found yourself asking, “Why are my Medicaid rebates so high?” You’re not alone. Many of our clients pose this very question. To help you understand and manage your Medicaid rebate liability, we examine three critical areas. This white paper will guide you through these areas and provide insights into the most common factors we see impacting Medicaid rebates.

1. UNITS: INCREASED SALES OR MEDICAID UTILIZATION

• Sales Growth: Have your overall sales or market share grown?
  •  Impact: Increased sales volumes, resulting in increased Medicaid utilization, elevate rebate amounts due to higher
    unit sales.
• New Products: Have you recently added new products to your portfolio?
  •  Impact: New product introductions can lead to increased rebate liabilities as more units are dispensed to Medicaid
    beneficiaries.
• Market Competition: Is there less competition for your products in the market?
  •  Impact: Less competition often results in higher sales volumes and, consequently, higher rebate amounts. This can be from competitors exiting the market, or even temporary reductions in competition due to supply shortages.
• New Contracts: Did you secure a new award with a large retailer that’s driving more sales or units?
  •  Impact: Such wins can boost sales and subsequently increase rebate liabilities.
• Sales Mix Changes: Has there been a shift in your sales mix?
  •  Impact: Retail sales typically incur higher Medicaid rebates compared to hospitals, which may see more 340B claims vs. Medicaid claims.
• National Medicaid Growth: Has there been an overall increase in national Medicaid enrollment, such as Continuous Enrollment or expansions in regions like Puerto Rico?
  •  Impact: More enrollees result in higher demand for medications, thus increasing rebate liabilities.

2. DOLLARS: INCREASED UNIT REBATE AMOUNT (URA)

• Average Manufacturer Price (AMP) Increase: Has your AMP increased? AMP is a calculated value representing the average price paid to manufacturers for prescription drugs sold to retail pharmacies. It is a crucial input in calculating the Unit Rebate Amount (URA) within the Medicaid Drug Rebate Program, directly impacting rebate calculations for manufacturers.
  •  Impact: If your AMP increases, your URA will increase as well, leading to higher Medicaid rebate liabilities.
• New or Large Contracts: Did you win or lose a significant award?
  •  Impact: Changes in award statuses can influence your AMP and URA calculations due to shifts in sales volumes at various price points.
• Inflation Penalties: Have you entered into inflation penalty territory ? The inflationary penalty is an additional rebate that manufacturers must pay if their AMP increases exceed the rate of inflation, based on the Baseline AMP and Consumer Price Index (CPI). This extra rebate can range from a few percentage points to the extreme of having a rebate larger than your actual selling price, depending difference between the allowed AMP and Baseline AMP.
  •  Impact: Inflation penalties can raise your URA and increase rebate amounts, drastically affecting your revenue and pricing strategies. The Baseline AMP is a crucial reference point for determining whether future AMP increases surpass inflation. Additionally, in January 2024 the AMP cap removal was introduced as part of the Inflation Reduction Act (IRA). Prior to this the URA was capped at AMP, meaning you could never pay more rebate than your current AMP price. Now this cap has been lifted, and it is not uncommon to see some products with URA’s well over 100% of the current AMP.
• Best Price Adjustments: Have you set a new best price or incurred new inflation penalties?
  •  Impact: Both adjustments can cause URA fluctuations, affecting rebate calculations.
• Pricing Changes: Did you recently change any WAC or contract pricing?
  •  Impact: Such changes can unexpectedly alter rebate calculations, often leading to higher rebates until the increased lagged rebates or chargebacks catch up to the price increase.

3. OTHER: ISSUES AND ANOMALIES (LESS COMMON)

• Industry-Wide Events: Have there been industry-wide events, like healthcare ransomware attacks, causing delays at state processing agencies?
  •  Impact: These delays can lead to inflated rebate amounts in certain quarters as agencies catch up on processing.
• New Medicaid Programs: Have new Medicaid programs been added? Relatively new program examples include the addition of Puerto Rico to MDRP (January 2023) and Oklahoma adding a new MCO program (August 2024).
  •  Impact: Additional Medicaid programs will likely result in additional Medicaid rebates for manufacturers with sales within those programs / locations.
• Unit of Measure Discrepancies: Are there discrepancies in the units of measure between what is reported by the manufacturer and what is invoiced by the Medicaid program?
  •  Impact: Errors in the unit of measure, in which the State Medicaid program invoices for, can sometimes conflict with what is reported by the manufacturer as well as what is the correct unit of measure per CMS guidance – leading to incorrect rebate amounts. This is commonly seen with Clinician Administered Drugs (CAD) and unique dosage forms of drugs. If the billing unit or unit of measure are not consistent with how the manufacturer is reporting and how the URA is calculated, it can cause a significant imbalance in the units to Rx ratio and result in large overpayments by manufacturers if not caught during the auditing stage of rebate processing.
• State or Vendor Processing Delays: Are states or invoice processors lagging in processing or applying payments? We frequently observe delays from state rebate processing agencies, which can lead to rebate invoices being billed to the manufacturer multiple times for payments that have already been made. It is essential to audit your invoices against historical payment records to ensure you are not duplicating payments or paying for the same utilization more than once.
  •  Impact: Without thorough audits of payments for specific utilization, manufacturers may unintentionally overpay their Medicaid rebates. When onboarding new clients, it is not uncommon for us to find that duplicate payments had been made which lead to millions of dollars in overpaid rebates.
• Payment Delays: Are your rebate payments falling behind? Medicaid rebate invoices must be processed and paid by manufacturers within 37 calendar days from the postmarked date on the original invoice to avoid interest charges. This 37-day period includes the time the invoice spends in transit, leaving a narrow window for adjudicating invoices.
  •  Impact: Delayed payments can complicate rebate calculations, leading to interest charges and increased financial liabilities. When rebate payments are not made on time, interest accrues daily, beginning on day 38, and is calculated based on the number of days past due as well as a percentage of total rebate dollars owed on an invoice.
• Errors in Medicaid Invoicing: Are there significant changes in utilization from specific programs that don’t align with trends you’ve observed in your business? While less common, Medicaid programs can occasionally make mistakes. In such cases, it may be worthwhile to request claims level detail reports (CLDs) and/or engage in a conversation with program administrators to discuss anomalous utilization and assess the possibility of inaccuracies.

Understanding the reasons behind high Medicaid rebates involves a thorough examination of several key factors. First, consider increases in overall sales or Medicaid utilization, which may be driven by new product launches, market dynamics, sales growth, significant contract awards, sales mix changes, and national Medicaid enrollment trends. Second, scrutinize the Unit Rebate Amount (URA) to determine if fluctuations in AMP, inflation penalties, award status, best price adjustments, or other pricing adjustments are contributing to higher rebates. Lastly, investigate potential issues or anomalies, such as industry-wide events, unit of measure (UOM) discrepancies, processing delays by states or vendors, and payment timeliness. By systematically analyzing these areas, you can identify the underlying causes of elevated Medicaid rebate liabilities.

For expert guidance and support in managing Medicaid rebates, processing, validation, payments or accruals, contact Prescription Analytics today.