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Schrader, Welch Bill to Close Billion Dollar Medicaid Loophole to Become Law

Congressmen Kurt Schrader (OR-05) and Peter Welch (VT-At Large)’s Right Rebate Act, which will close a loophole in the Medicaid Drug Rebate Program that may be costing the Medicaid program as much as $1 billion, passed through both chambers of Congress as part of a bipartisan package of health care bills and is headed to the President’s desk to become law.

“Centers for Medicare and Medicaid Services (CMS) will now have the proper authority to deal with these inaccuracies that have cost Oregon Health Plan and other plans over a billion dollars,” said Rep. Schrader. “Our fix will prevent bad actors from taking advantage of the system and honest mistakes from costing us even more money. I want to thank my colleagues across both chambers for their support in ushering through this legislation.”

“For too long, drug companies have been ripping off the Medicaid program by misclassifying their products to limit required price discounts,” said Rep. Welch. “This commonsense legislation puts a stop to this unethical practice and ensures that all drugs covered by Medicaid are correctly classified.”

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 percent of the Average Manufacturer Price (AMP) per unit, and generic drugs, at 13 percent of the 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 Right Rebate Act, if a drug company knowingly misclassifies their brand drug as a generic, CMS will have the power to fine the drug company double the normal rebate they would have had to pay the government. The bill strengthens CMS and congressional oversight of the program to close the loophole.

Reps. Schrader and Welch reintroduced the bill in February before it passed by voice vote through the House at the end of March and through the Senate this week. Reps. Schrader and Welch first introduced a version of the bill during the 115th Congress, where it passed through the House as part of the IMPROVE Act.