Medicaid Drug Rebate Program (MDRP)

Key facts

Created by

Omnibus Budget Reconciliation Act of 1990

Legal basis

Social Security Act Section 1927; 42 CFR Part 447, Subpart I

Administered by

CMS, with rebates invoiced by states

Participation

Manufacturers sign a national drug rebate agreement with HHS

Coverage

All 50 states and the District of Columbia cover outpatient drugs

What is the Medicaid Drug Rebate Program?

A manufacturer that wants its outpatient drugs covered by Medicaid signs a national drug rebate agreement with the Secretary of Health and Human Services. In return, state Medicaid programs generally must cover that manufacturer's covered outpatient drugs, although they can still use preferred drug lists and prior authorization.

Rebates are shared between the states and the federal government. The same statute ties Medicaid and Medicare Part B payment for a manufacturer's drugs to related agreements covering the 340B Drug Pricing Program and Department of Veterans Affairs pricing.

How MDRP rebates are calculated

Rebates are driven by manufacturer-reported prices and state utilization:

• Manufacturers report pricing data to CMS monthly and quarterly, including Average Manufacturer Price (AMP) and, for brand drugs, Best Price.
• CMS calculates a unit rebate amount (URA) for each National Drug Code (NDC) each quarter.
• For most brand drugs, the basic rebate is the greater of 23.1 percent of AMP or AMP minus Best Price; for generic drugs it is 13 percent of AMP.
• An additional inflation-based rebate applies when AMP rises faster than inflation, and certain line extensions of oral solid drugs owe an alternative rebate.
• States multiply the URA by their utilization, including Medicaid managed care utilization, and invoice manufacturers quarterly.

Why the MDRP matters

Medicaid rebates are one of the largest gross-to-net deductions for many brands, so pricing and market access teams model them before any list price change. Since January 1, 2024, the rebate is no longer capped at 100 percent of AMP, which has prompted some manufacturers to cut list prices on older drugs with large accumulated inflation rebates.

The program also generates widely used public data. CMS publishes drug product files listing each NDC in the program with its labeler, drug category (single source, innovator multiple source or non-innovator multiple source) and FDA application type, State Drug Utilization Data showing prescriptions and reimbursement by state and NDC, and the Federal Upper Limit and NADAC files.