Manufacturers do this because the Medicaid statute permits the federal Government to partially reimburse states only for drugs purchased from manufacturers who have agreed to pay statutorily specified rebates to those states. Thus, pharmaceutical manufacturers that want their drugs available to Medicaid beneficiaries under the Medicaid program enter into a Rebate Agreement with the HHS Secretary to provide rebates.
The Rebate Agreement requires manufacturers to submit a Quarterly Report (Form CMS-367). The Quarterly Report includes information regarding each of the manufacturers’ “Covered” Drugs, including such information as its “Average Manufacturer Price” (“AMP”), “Baseline AMP,” and its “Best Price.” Based upon this information, CMS then tells the states how much rebate the state is entitled to collect with respect to each drug.
For “single source drugs” and “innovator multiple source drugs,” manufacturers are required to rebate 15.1%, or the difference between AMP and the Best Price at which the manufacturer sells the product to a non-public health service or Veteran s administration customer, whichever is greater.
Pharmaceutical manufacturers enter into a Rebate Agreements with the U.S. Secretary of Health and Human Services. In that Agreement, they agree to comply with 42 U.S.C. § 1396r-8, and hence:
a. Agree to report their Best Price, inclusive of cash discounts, free goods contingent upon any purchase requirements, volume discounts and rebates, etc
b. Agree that they would determine its Best Price based upon its AMP, calculated as “net sales divided by numbers of units sold, excluding free goods (i.e., drugs or any other items given away, but not contingent on any purchase requirements)” and that they would include that in the calculation, cash discounts and all other price reductions “which reduce the actual price paid”; and
c. Agree that the Best Price would not take into account nominal prices, defined as prices that are less than 10 percent of the AMP in that quarter, so long as the sale of product at a nominal price was not contingent on any other sale.
After execution of this Agreement, the pharmaceutical manufacturers report their AMP and Best Price in each quarter, to the Medicaid Program on Form CMS-367.
a. Did the manufacturer pay Managed Care Organizations (“MCOs”), or specialty pharmacies (SPs) or Prescription Benefit Managers (PBMs) or other entity kickbacks, to have a drug product listed on the MCO’s formulary, or otherwise give preferential treatment to the drug product to increase utilization?
b. Did the manufacturer enter into arrangements with these or other entities for educational and/or research grants? (Ostensible reasons for the grants can include educating the MCO’s participating providers and/or enrollees regarding medication compliance, chronic disease management, appropriate prescribing of pharmaceutical products, preventative health care measures, conducting outcome studies and more).
c. Were discounts and/or rebates provided but were off-invoice? Were they hidden from the transaction? Were they disguised as educational grants or some other phony purpose?