Budget Act Could Lower 340B Prices for Some Drugs
The Bipartisan Budget Act of 2018 that President Trump signed into law on Feb. 9 corrected a drafting error in the Affordable Care Act (ACA) and the change could lower 340B prices for some line extension drugs. The correction involves how Medicaid drug rebate program inflationary rebates are calculated for line extensions (a new version of a drug that makes only minor changes to the original product, such as an extended release formulation).
A drug manufacturer must pay an inflationary rebate in addition to a standard Medicaid rebate for a particular quarter when a drug’s price has increased more quickly than the rate of the inflation. To determine if an additional rebate is owed, manufacturers and the federal government compare the drug’s current average manufacturer price (AMP) with the drug’s AMP when it first came to market (i.e., baseline AMP).
When Congress passed the ACA, it intended for a line extension’s inflationary rebate to be the greater of the inflationary penalty calculated using the line extension’s new baseline AMP or the inflationary penalty calculated using the original drug’s baseline AMP. However, due to a drafting error, the ACA instead compared the inflationary penalty calculated using the original drug’s baseline AMP against the basic rebate plus the inflationary penalty calculated using the line extension’s inflationary penalty, instead of comparing just the two inflationary penalties.
340B Health understands that the drafting error resulted in Medicaid rebates for line extensions sometimes being lower than they would have been had the error not occurred. The recent budget law corrected the error and restored Congress’s original intent. This should result in larger Medicaid rebates for some line extensions, as well as greater 340B discounts because the size of a drug’s 340B discount is directly related to the size of the product’s Medicaid rebate.
If you have any questions, contact 340B Health Vice President, Legal and Policy Counsel Greg Doggett at greg.doggett@340bhealth.org or 202-552-5859.