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House Passes Welch Legislation Closing Drug Company Loophole

March 26, 2019
Press Release

WASHINGTON, D.C. – Late yesterday, the House passed legislation introduced by Rep. Peter Welch (D-Vt.) that closes a loophole in the Medicaid program benefitting drug companies. The loophole allows the companies to minimize drug discounts they are required to provide to state and federal Medicaid programs.

Welch’s legislation was included in the Medicaid Services Investment and Accountability Act, a package of bills aimed at improving the Medicaid program.  It was unanimously approved by the House.

Earlier this year, Rep. Welch and Rep. Kurt Schrader (D-Ore.) introduced the legislation after an Inspector General report revealed the loophole cost state and federal Medicaid programs $1 billion between 2012-2016. 

“Drug companies are ripping off the Medicaid program by incorrectly classifying drugs to minimize required rebates,” said Welch. “This commonsense legislation will stop drug companies from gaming the system by ensuring that drugs covered by the program are properly classified and that rebates due are paid.”

Manufacturers seeking to have their drugs covered by Medicaid are required to pay rebates to federal and state governments. Rebates are higher for brand name drugs. According to the Inspector General, hundreds of brand drugs in the rebate program are being intentionally mischaracterized by drug companies as generic.

Under the Welch-Schrader legislation, if a drug company knowingly misclassifies a brand drug as generic, the Centers for Medicare and Medicaid Services (CMS) is authorized to asses a fine equal to a doubling of rebate amount due on that drug. The legislation also beefs up CMS and congressional oversight of the Medicaid drug rebate program.

Welch is a leading advocate in the House of Representatives for cutting the price of prescription drugs and reforming the drug pricing system. He is a senior member of the powerful House Energy and Commerce Committee which has jurisdiction over the Medicaid program and the Affordable Care Act.

Sens. Ron Wyden (D-Ore.) and Chuck Grassley (R-Iowa) have introduced companion legislation in the Senate.