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Replies to post #245721 on Biotech Values
The cuts will kick in just as a federal cap on Medicaid payments is eliminated.
Heavyweight insulin-maker Novo Nordisk said Tuesday that it will lower list prices for some of its insulin products by up to 75 percent by the end of the year, following in the footsteps of Eli Lilly…
… the price cuts may seem linked to last year's Inflation Reduction Act, health policy experts and lawmakers note that a slightly older law may be the real impetus behind the dramatic cuts—the American Rescue Plan of 2021. The law contained a number of provisions to improve health care access and affordability, including one that eliminates a cap on rebates that drug companies are required to pay Medicaid. If the cap was lifted with insulin list prices set as they are now, insulin makers might have had to pay Medicaid programs more than the price of their insulin products every time a Medicaid program had to cover one, likely totaling tens of millions of dollars in payments to Medicaid. But, with the lower list prices, Eli Lilly and Novo Nordisk will dodge those extra payments. The rebate cap is set to lift January 1, 2024—which is also when the companies' price cuts will fully kick in.
The rebate program cap is a little complicated, so here's a breakdown of how it works. It all stems from the Medicaid Drug Rebate Program (MDRP), passed by Congress under the Omnibus Budget Reconciliation Act of 1990. The straightforward goal of the MDRP was to make sure that Medicaid paid the lowest or best possible price for prescription drugs. As such, drug makers who want their drugs covered by Medicaid have to enter into a rebate agreement, under which Medicaid agrees to cover and purchase their products as long as the drug makers pay them back a rebate to keep costs as low as possible. The cost of the rebate is based on a set of formulas that consider things like the type of drug—brand or generic—and market prices.
… There's one more key element to the rebate calculation, though: inflation. If a drug maker raises its prices faster than inflation, then the drug maker has to also pay back the difference between the current average price and the price the drug would have been if price increases had simply matched inflation. This is calculated based on a "baseline" average manufacturer price
… Based on the current prices for insulin, Eli Lilly and Novo Nordisk would easily end up paying Medicaid rebates that exceed the average manufacturer price of their drugs, thanks to the companies' steep price increases that blew past rates of inflation over the years…
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