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The American Rescue Plan Act’s impact on Medicaid and pharma

Authored by Erica Petersohn, Kenquavius McCollum and Sujaan Sanghvi

The American Rescue Plan Act of 2021 – a $1.9 trillion aid package to assist in the United States’ recovery from the economic and health effects of the COVID-19 pandemic – was signed into law on March 11, 2021. The bill calls for a number of provisions to increase aid coverage, assist businesses and individuals, and support the economy overall to lessen the hardships brought upon by the novel coronavirus. (1)(2)

Within the detailed bill, there are two sections of special interest for the pharmaceutical and life sciences industry as they relate directly to Medicaid coverage of COVID-19 vaccines and the sunset of a critical drug rebate provision. These new stipulations may require pharmaceutical manufacturers to reconsider their government program coverage strategies not only for the present, but also for a post-pandemic future.

Mandatory COVID-19 vaccine coverage under Medicaid

Section 9811 of the American Rescue Plan aims to establish a treatment bundle within Medicaid. COVID-19 testing, treatment and immunization are now seen as a required medical assistance benefit for Medicaid eligibility groups. In addition to the bundle covering treatment for COVID-19 and related conditions, there is also a provision which overrides state limits on benefit coverage for cases where the coronavirus is the primary diagnosis. Because this is a coverage rule specifically for Medicaid beneficiaries, entitlement to treatment ceases once patients are no longer deemed eligible for Medicaid.

This is the largest Medicaid coverage determination to date, as prior provisions focused on specific eligibility groups (i.e., children, pregnant women, people diagnosed with cervical or breast cancer). This plan was enacted starting on March 11, 2021, and runs through one year after the public health emergency ends.

This law also establishes a benefit-limit override by expanding coverage for patients diagnosed with or presumed to have COVID-19, as well as for those with conditions that may complicate the COVID-19 treatment process.(3) Underlying conditions that would impact COVID-19 treatment would be deemed as mandatory coverage, ignoring any state plan limits. There are questions surrounding this benefit override, such as what constitutes a presumptive COVID-19 diagnosis as well as which conditions are believed to complicate COVID-19 treatments. Contingency planning is also required for individuals whose Medicaid eligibility lapses while receiving treatment.

Additionally, a cost-sharing protection is in place, which overrides traditional state cost-sharing requirements. Medicaid enrollees experience no cost-sharing for COVID-19 immunizations, as the federal medical assistance percentage is set to 100% for the COVID-19 treatment bundle. Finally, the Medicaid drug rebate program is updated to encompass any drug or biological product associated with the “treatment or prevention of COVID-19.”(4) The Medicaid Drug Rebate Program helps to offset federal and state costs of outpatient drugs available to Medicaid patients.(5)

While the American Rescue Plan Act goes into effect nationally, the Medicaid COVID-19 treatment bundle incentivizes the states which have expanded Medicaid eligibility up to 138% of the federal poverty level. Pharmaceutical and device manufacturers would also benefit from this legislation, as expanded coverage for COVID-19-related treatments in conjunction with the Medicaid Drug Rebate Program increases the number of those eligible to receive treatments without any cost-sharing, as well as allow manufacturers to recoup development costs.

Sunset of Medicaid drug rebate limit

Within the American Rescue Plan Act, a provision dictates the sunset of the Medicaid drug rebate limit in Section 9816. Manufacturers that had previously not been concerned with long-term average manufacturer price (AMP) increases in relation to inflation may need to adjust their pricing strategies. If AMP rises faster than inflation, then manufacturers may end up paying more than the drug’s AMP in penalties starting in 2024. While this could be considered a step towards controlling drug pricing, this policy action may lead manufacturers to reconsider their participation of certain products in Medicaid overall.

The current penalty limitation, as governed by Section 1927 of the Social Security Act, is that the total rebate amount paid by pharmaceutical manufacturers is not to exceed the AMP of the drug. This limitation prevents manufacturers from paying rebates that are greater than what the drug was sold for. Manufacturers increase the AMP due to inflationary pressures, either suddenly to catch up, or incrementally over time. Currently, once a cap is reached, the higher prices can be charged without additional penalty.

With the passing of the American Rescue Plan Act of 2021, this will end on Dec. 31, 2023. Penalties can now grow with each price increase, resulting in scenarios in which a manufacturer may not only have to give away their product for free to Medicaid enrollees, but also expose themselves to additional rebates that could be greater than their AMP values.

With possibly unprofitable situations ahead, pharmaceutical manufacturers may need to reevaluate their current government pricing and access environment to ensure they implement a successful government program engagement strategy. The new bill may force manufacturers to rethink their pricing strategies and overall business in Medicaid, Public Health Services (PHS) and other federal programs as it relates to their bottom line.

Ultimately, it may result in vastly different engagement/pricing strategies, or perhaps even disengagement of certain products from government markets. Withdrawing products from the government market may prove to be a strategy for some manufacturers to ensure their profit margins are maintained.(6) Removing products from a large market is not preferable for any company, let alone pharmaceutical firms, which entails that further analysis of government pricing strategies must be conducted for these firms to maintain fair, yet profitable, prices for these markets.

Given the 2024 deadline, pharmaceutical firms will have time to evaluate their respective situations to ensure a sustainable solution is implemented for the benefit of their patients. The new provision even has the potential to open further conversations and negotiations between pharmaceutical and government stakeholders to ensure an equitable agreement regarding rebates can be reached to benefit Medicaid patients within the parameters of the new rule.

Considerations for pharmaceutical manufacturers

The signing of the American Rescue Plan Act of 2021 serves as a measure of hope for many looking for the economy to recover as the pandemic enters its second year. Given the large size of the bill, its effects are wide ranging, impacting pharmaceutical manufacturers among many other American stakeholders.

Regarding Section 9811, pharmaceuticals will need to compile evidence as to how their products tackle COVID-19, as well as COVID-19-related diseases. Additionally, this places a larger emphasis on states which have not expanded Medicaid coverage to do so. For Section 9816, pharmaceutical manufacturers will need to begin planning a potential revision of their government pricing strategies in order to remain competitive in the marketplace. With the sunset of the maximum Medicaid rebate amount, it’s imperative for manufacturers to reassess their pricing strategies in time for the change when it goes into effect in 2024.

For more information on this topic or to learn how Baker Tilly specialists can help, contact our team.

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