Authorized by Social Security Act Sec. 1927
Involves CMS, state Medicaid agencies and participating drug manufacturers and helps to offset the federal and state costs of most outpatient prescription drugs dispensed to Medicaid patients.
Requires a drug manufacturer to enter into a national rebate agreement with the HHS Secretary in exchange for state Medicaid coverage of most of the manufacturer’s drugs.
Rebates, which are based on statutory formulas, are paid by drug manufacturers on a quarterly basis to states and are shared between the states and the federal government.
For innovator drugs, the base rebate equals the greater of 23.1 % of the average manufacturer price (AMP) or the difference between the AMP and the best price available for the drug in any US market sector.
For generics, rebates equal 13% of the AMP.
Manufacturers are also liable for additional rebates when the average manufacturer price for their drugs increase by more than a specified inflation factor, which can significantly increase the overall rebates paid.

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