How does the Medicaid inflation rebate work, and how was it gamed?
Manufacturers owe rebates for every dollar of price increase above inflation since a drug's first market entry — but by treating Acthar as new in 2013, Questcor reset the baseline to $28,000+, eliminating the most damaging decades of increases from the calculation.
Under the Medicaid Drug Rebate Program, when a manufacturer raises a drug's price faster than inflation, it must pay an extra per-unit rebate. As Idaho's attorney general explained, the rebate is the difference between the drug's current price and what its price would be if it had risen only at inflation since 1990 or since the drug first came to market, whichever is later. For Acthar, the relevant baseline should have reflected its pre-1990 market history. By treating Acthar as a new drug in 2013, the companies effectively reset the baseline to a price already above $28,000 a vial, wiping out decades of increases from the calculation. Because most of Acthar's price growth had occurred before 2013, the reset sharply reduced rebates owed. Mallinckrodt agreed to correct Acthar's base date average manufacturer price and never to change it again. The case illustrated how technical rebate rules can have very large financial effects.