Mintz IRA Update — Removal of AMP-Cap on Medicaid Rebates Causes Insulin Price Decrease
Insulin costs lowered to $35 dollars per month for many patients this year as three major insulin manufacturers — Sanofi, Novo Nordisk, and Eli Lilly — began offering price caps or savings programs.[1] This strategy was designed to help manufacturers avoid a significant increase in rebates paid to the Medicaid program in light of the removal of the cap on Medicaid drug rebates.
By way of background, manufacturers are required to pay rebates to the Medicaid program to have their drugs covered under Medicaid (known as the Medicaid Drug Rebate Program). Such rebates have historically been calculated based on (1) the percentage of the average manufacturer price (AMP) charged to wholesalers or Best Price, and (2) an inflationary factor to account for the increase in drug prices over time. This means that if the price of a drug increases faster than inflation, the manufacturer would be required to rebate that difference to the Medicaid program. However, the total rebate amount has been capped at 100% of AMP since 2010. The American Rescue Plan Act of 2021 (ARP) eliminated this cap as of January 1, 2023. Now, the amount of rebates due under the Medicaid Drug Rebate Program will be based on inflation and will be significantly higher than in past years (likely much greater than the AMP for a drug). By reducing insulin prices, Sanofi, Novo Nordisk, and Eli Lilly are projected to avoid paying upwards of hundreds of millions in Medicaid rebates in 2024.
As we have discussed, the IRA requires manufacturers to pay rebates to Medicare if prices for certain Medicare Part B and Medicare Part D drugs increase faster than the rate of inflation. Medicare began invoicing manufacturers for inflation rebates in 2023. Given this and the removal of the AMP-cap under the Medicaid Drug Rebate Program, it is possible that we will see manufacturers take action to lower the cost of other drugs.[2] Industry stakeholders have noted that “lifting the rebate cap [in Medicaid] magnified the effects of the Medicare inflation-related rebates.”
Endnotes
[1] The $35 price cap on out-of-pocket costs for a one-month supply of Sanofi’s insulin drug, Lantus, was implemented for patients with commercial insurance as of January 1, 2024. Novo Nordisk launched its MyInsulinRx program in September 2023, offering a 30-day supply of insulin at $35 for uninsured and other eligible patients. Eli Lilly began providing a $35 monthly cap on out-of-pocket insulin costs for patients with commercial insurance, available at participating retail pharmacies, in March 2023. Uninsured patients can also take advantage of Eli Lilly’s savings card, which allows them to get insulin for $35 a month.
[2] We note, however, that despite these observations, data recently released by 3 Axis Advisors, a healthcare research consulting firm, and analyzed by Reuters, suggests that drug manufacturers are expected to increase US drug prices as the industry grapples with higher inflation and manufacturing costs. The report forecasts that drug manufacturers are expected to raise prices on at least 500 drugs beginning in January 2024. Furthermore, the report also notes that 140 brands are expected to have a surge in prices in January, excluding different doses and formulations. The expected price hikes are set to occur in anticipation of the Biden administration’s plan to publish new discounted prices for 10 high-cost drugs under the Inflation Reduction Act in September 2024.
Authors
Bridgette A. Keller
Of Counsel
Madison M. Castle
Associate
