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Created by the Omnibus Budget Reconciliation Act of 1990 (OBRA'90), the Medicaid Drug Rebate Program requires a drug manufacturer to enter into and have in effect a national rebate agreement with the Secretary of the Department of Health and Human Services (HHS) for states to receive Federal funding for outpatient drugs dispensed to Medicaid patients. The drug rebate program is administered by the Centers for Medicare & Medicaid Services' Center for Medicaid and State Operations (CMSO). The drug rebate program was amended by the Veterans Health Care Act of 1992 (VHCA). Under VHCA, drug manufacturers are required to enter a pricing agreement with HHS for the Section 340B Drug Pricing Program, which is administered by the Health Resources and Services Administration. To obtain a copy of this pricing agreement, click on the download links listed below. In addition, VHCA requires drug manufacturers to enter into various agreements with the Department of Veterans Affairs (VA) under Section 603. For more information regarding the VA requirements, please contact Ms. Cheryl Ward-Roberts at 708-786-5259 or Cheryl.ward-roberts@va.gov. A drug manufacturer must sign an agreement with these two programs in order to have its drugs covered by Medicaid.

Approximately 550 pharmaceutical companies currently participate in this program. Forty nine states, (Arizona is excluded), and the District of Columbia cover drugs under the Medicaid Drug Rebate Program.

As of January 1, 1996, the rebate for covered outpatient drugs is as follows:

Innovator Drugs – the larger of 15.1 % of the Average Manufacturer Price (AMP) per unit or the difference between the AMP and the best price per unit and adjusted by the CPI-U based on launch date and current quarter AMP.

Non-innovator Drugs – 11 % of the AMP per unit.


State Strategies to Lower Medicaid Pharmacy Costs [PDF, 45KB]

Pharmacy State Medicaid Directors' Letters [ZIP, 911KB]
Related Links Inside CMS
DRA Provisions on Medicaid Prescription Drugs

Excluded Drug Coverage by State Medicaid Program

Medicaid Drug Rebate Dispute Resolution Program
Related Links Outside CMSExternal Linking Policy
Health Resources and Services Administration's 340B Pharmaceutical Pricing Agreement


Page Last Modified: 11/25/2008 10:32:32 AM
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