Inflationary Rebates For Generic Drugs Sold Through Medicaid Saved Billions During 2017-20

State Medicaid programs cover nearly all Food and Drug Administration-approved prescription drugs in exchange for mandatory manufacturer rebates, including rebates that offset price increases beyond inflation. These inflationary rebates originally applied to brand-name drugs only, but in 2017 Congress expanded them to include generics. Using public Medicaid medication spending and utilization data and three different measures of drug prices, we found that nearly half of generic drugs were subject to inflationary rebates during the period 2017-20, offsetting 2-12 percent of the $53.6 billion in generic drug spending during that time. Rebates were larger among non-orally administered drugs and those with the highest prices. Generic inflationary rebates offset substantial Medicaid spending during that period, suggesting that many generic prices increased above inflation despite the new policy. This might change now that inflationary rebates have been expanded to Medicare under the Inflation Reduction Act of 2022, although additional policies that ensure competitive markets would better protect all US patients from rising generic drug prices.