Medicaid has a new rebate rule for prescription drugs which underwent substantial price increases in the past. In response, the pharmaceutical firm GSK is withdrawing branded Flovent, an asthma medication, and replacing it with an “authorized generic” at a modestly lower price than the branded product. But because it will have no price history it will not be subject to the Medicaid rule. However, owing to the convoluted drug pricing and reimbursement system in the U.S., the authorized generic Flovent won’t be as broadly covered by pharmacy benefit managers as the branded product was, leaving some patients with an access problem.
The discontinuation of branded asthma medication Flovent on January 1 coincides with the removal of the Medicaid rebate cap. Drug manufacturers must now pay Medicaid special rebates if they previously raised the price of their medications above inflation.
According to data from GoodRx, a company that tracks prescription drug prices and provides coupons for discounts on medications, the price of branded Flovent has gone up about 47% since 2014. It’s unclear if the 47% increase applies to both branded products, Flovent Diskus (fluticasone propionate inhalation powder)—on the market since 2000—and Flovent HFA (fluticasone propionate inhalation aerosol)—approved in 2004. The active ingredient in both products, fluticasone, shrinks inflammation in the airways and reduces the body’s excessive auto-immune response to certain triggers that make it harder to breathe properly.
Until this year, Medicaid rebates were capped at the total price of a drug. But due to a provision in the American Rescue Plan Act that goes into effect this month, the cap is eliminated.
This implies that drug manufacturers that have raised prices could end up selling drugs to Medicaid at a loss.
Companies can avoid this by substantially reducing the prices of their pharmaceuticals, as manufacturers of insulin products have done.
Or they can introduce an authorized generic, as GSK did with Flovent. Authorized generics are prescription medications produced by pharmaceutical companies and marketed under a private label at lower prices than the originator branded product. They are identical to their brand counterpart in both active and inactive ingredients. Once launched they don’t carry the same price history as the original brand. As such, they’re not subject to the greater Medicaid rebates. The authorized generic Flovent is approximately 35% less in terms of list price than the branded product.
But due to the complex drug pricing and reimbursement system access to authorized generics may be spotty. To illustrate, the PBM CVS Caremark said that the authorized generic Flovent costs them more than branded alternatives with lower net prices. CVS Caremark is therefore granting preferential placement on its formulary to another branded inhaler, Pulmicort, in lieu of the authorized generic versions of Flovent.
In other words, makers of competitor branded asthma drugs are paying the PBM large rebates to lower net prices to attain preferred placement on formularies, or lists of medicines which the PBM reimburses. These standard rebates are different from the ones paid under the new Medicaid rule. In both the commercial and Medicare markets, such rebates are payments from drug makers to PBMs in exchange for moving market share towards a particular product. This can be accomplished by placing the product in a preferred position on formulary. Controversially, however, rebates are not passed on to patients at the point of sale at the pharmacy. Rather, a portion is retained by the PBM and another part is transferred to the sponsoring health plan or employer.
As a consequence of the higher rebates paid for competing brands, the authorized generic Flovent won’t be as widely covered by PBMs and insurers in 2024, despite the fact that Flovent has been the most commonly used inhaled anti-inflammatory medication for decades.
Not having access to Flovent is problematic and reflects a system-wide issue. Pricing and reimbursement of prescription drugs in America is extraordinarily complex, opaque and often functions to the detriment of patients. While the wholesale acquisition cost is publicly known, it’s mostly irrelevant to patients. On the other hand, what is relevant to patients, the markups along the drug supply chain as well as the rebate, are considered trade secrets.
There is another related facet to this story, and it is that the discontinuation of branded Flovent represents an unintended consequence of a perhaps well-intended policy change. Prices of existing drugs that have been around a long time have gone increased considerably. Medicaid is invariably resource-constrained, and so it wants to put an end to the increases. But by doing so, it incentivizes the kind of behavior we’re seeing by drug makers—in this case GSK—and PBMs like CVS Caremark.
Advice for patients is to try and renew a supply of branded (and covered) Flovent from their pharmacy while supplies last; discuss with their PBM whether it will cover the authorized generic; if the authorized generic isn’t reimbursed, consider an alternative inhaler such as Pulmicort.
