Reduction in Medicaid Rebates Paid by Pharmaceutical Manufacturers for Outpatient Infused, Injected, Implanted, Inhaled, or Instilled Drugs: The 5i Loophole

Abstract

Context: When nonretail pharmacy sales exceed 70% of sales, manufacturers of infused, injected, implanted, inhaled, or instilled (5i) drugs are required to calculate average manufacturer price (AMP) under a different methodology than that used for drugs predominantly distributed through retail channels. Specifically, the modified methodology includes pharmacy benefit manager (PBM) rebates in the calculation of AMP for 5i drugs. The modified methodology reduces manufacturers' Medicaid rebate liability and increases net costs to the Medicaid program.

Methods: The authors identified 15 5i drugs predominantly dispensed through the nonretail setting. Using 2013-2017 data from Medicaid, Medicare, SSR Health, and 340B program eligibility, they estimated differences in AMP, Medicaid rebates, and net Medicaid costs under both the standard and 5i AMP methodologies.

Findings: AMP was 42% lower, on average, under the 5i methodology than under the standard methodology. From 2013-2017, Medicaid rebates under the 5i methodology were 82% lower than under the standard methodology, resulting in manufacturers of these 15 drugs reducing their Medicaid rebate liability by $1.1 billion in five years.

Conclusions: Inclusion of PBM rebates in the calculation of AMP for 5i drugs significantly reduced Medicaid rebates, resulting in higher Medicaid spending. This may incentivize manufacturers to shift sales to nonretail channels. To remove this incentive, policy makers should consider excluding PBM rebates from the calculation of AMP for 5i drugs.

Keywords: Medicaid rebates; average manufacturer price; pharmaceutical policy.