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A new report finds that Medicaid could have saved $1.4 billion over the past decade if companies were required to offer rebates whenever prices for best-selling generic drugs exceeded the inflation rate.

The analysis, which was conducted by the Office of the Inspector General of the US Department of Health & Human Services, found that the increase in the prices of generic drugs regularly exceeded inflation between 2005 and 2014. It further found that if rebates had been required for the top 200 generic medicines, Medicaid could have saved more than $39 million in 2005 and more than $464 million in 2014.

The analysis comes after the federal budget bill, which was passed last month, included a provision requiring generic drug makers to offer state Medicaid programs rebates tied to inflation starting in 2017. The HHS OIG had already begun work on its report last spring at the request of two congressional lawmakers.


The effort began amid the escalating debate over the cost of pharmaceuticals and the strain placed on private and public payers. Although most attention had been focused on brand-name medicines, prices for some generic drugs last year also began rising considerably. The price hikes caught many by surprise, since generics are generally viewed as a lower-cost option, and prompted congressional hearings.

Under current law, brand-name drug makers are required to pay an additional rebate to Medicaid, but generic drug makers are not. This prompted Bernie Sanders, the Vermont Democratic senator and presidential candidate, and Elijah Cummings, a Democratic congressman from New York, to ask the OIG to assess potential savings if generic companies had to offer rebates. They also introduced bills to require these rebates.


“The United States is the only major country on earth that does not in one form or another regulate prescription drug prices and the results have been an unmitigated disaster,” Sanders said in a statement. “This report further demonstrates that we need a new approach to stop skyrocketing drug prices in this country.”

There have been several explanations offered for the price increases for generic drugs. The most commonly cited reason, however, are manufacturing problems. These have prompted some companies to discontinue production, which made it possible for competitors to boost prices, especially if fewer alternative medicines remained on the market.

A spokesman for the Generic Pharmaceutical Association declined to comment on the OIG report. Chip Davis, who heads the trade group, wrote in a recent blog post that the Medicaid rebate “will add significant hurdles to generic drug investment and development” that will eventually hurt patients.

As we noted previously, though, price hikes for generic drugs have slowed this year. Through September, prices rose 2.6 percent, much less than the 4.9 percent increase seen in 2014, according to an analysis by Truveris, a health care technology firm that tracks drug pricing. The firm analyzes claims data involving more than 300 million payments to US pharmacies for prescriptions.

Nonetheless, Cummings maintains that the report “confirms that skyrocketing drug prices are not just an isolated problem caused by one or two greedy CEOs, but a systemic injustice that enriches corporate executives at the expense of Americans in desperate need of their medications.”