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Schrader, Welch Introduce Bill to Close Billion Dollar Medicaid Drug Rebate Loophole

Congressman Kurt Schrader (OR-05) and Congressman Peter Welch (VT-At Large) today introduced a bill to close a loophole in the Medicaid Drug Rebate Program that may be costing the Medicaid program as much as $1 billion.

“It’s ridiculous that seemingly simple errors have resulted in this billion dollar loss,” said Rep. Schrader. “Our bill gives CMS the proper authority to deal with these inaccuracies, preventing bad actors from taking advantage of the system and honest mistakes from costing us even more money.”

“It simply makes no sense that we allow drug companies to brazenly rip off taxpayer dollars by incorrectly classifying their drugs to get undeserved rebates,” said Rep. Welch. “This commonsense legislation will prevent drug companies from gaming the system by ensuring that all drugs covered by Medicaid are classified correctly.”

Under the Medicaid Drug Rebate Program, drug manufacturers who wish to have their drugs covered by Medicaid must pay a rebate to federal and state governments, and the rebate rate is different for brand drugs, at 23.1% of the Average Manufacturer Price (AMP) per unit, and generic drugs, at 13% of AMP per unit. When applying for the rebate, the manufacturer must indicate whether their drug is brand or generic. According to an HHS Inspector General Report published in December of last year, however, hundreds of drugs in the rebate program that should be considered brand were marked in their applications as generic. That same report found that this may have cost the rebate program upwards of $1 billion. Under the Medicaid Drug Rebate Accountability Act, the Centers for Medicare and Medicaid (CMS) will be required to notify drug manufacturers if their drugs are found to be classified incorrectly. In turn, drug manufacturers will be required to reclassify any misclassified drugs within 30 days of notice from CMS. If a correction is not made within that 30-day window, the manufacturer will be fined $100,000 per day until classification is corrected.