CMS finalises 2027 Medicaid Drug Rebate Program rule: inflation rebate expansion and new manufacturer reporting requirements

The Centers for Medicare & Medicaid Services (CMS) ↗ has finalised its 2027 Medicaid Drug Rebate Program (MDRP) rule. The final rule addresses three principal areas: (1) expanded inflation rebate provisions following the Inflation Reduction Act (IRA) 2022 ↗; (2) clarified Best Price reporting for value-based payment arrangements; and (3) monthly Average Manufacturer Price (AMP) reporting requirements for drugs with significant price volatility. The rule takes effect January 1, 2027 and applies to all manufacturers enrolled in the MDRP. See the full guide to Medicaid prescription drug coverage for programme context.

The IRA established inflation rebates for Medicare Part D in 2022 and for Medicaid beginning in 2023. The 2027 rule expands inflation rebate applicability to additional drug categories previously exempt, including certain generic drugs that had experienced above-CPI price increases and combination products. Manufacturers must pay an additional rebate equal to the amount by which the drug's AMP increase exceeds the Consumer Price Index for All Urban Consumers (CPI-U). CMS estimates this expansion will generate approximately $2.1 billion in additional rebates across state and federal Medicaid programmes in 2027. This directly benefits state Medicaid preferred drug list formulary costs and patient cost-sharing. More on how rebates work: Medicaid Drug Rebate Program explained.

Value-based payment (VBP) arrangements — where manufacturers tie drug prices to clinical outcomes — have grown significantly since 2020. Under prior rules, outcomes-based rebates could technically trigger Best Price reporting obligations, deterring VBP adoption. The 2027 rule finalises an alternative Best Price framework for bona fide VBP arrangements, allowing manufacturers to report an "aggregated Best Price" that accounts for the range of outcomes-contingent pricing without a single low-outlier outcome triggering the mandatory Best Price floor. This is intended to encourage more value-based contract adoption for high-cost drugs including gene therapies, biologics, and outcomes-tied oncology agents. The KFF MDRP explainer ↗ provides accessible background.

Currently, manufacturers report Average Manufacturer Price (AMP) quarterly. The 2027 rule requires monthly AMP reporting for drugs whose monthly price change standard deviation exceeds 2% of the prior quarter's AMP — capturing drugs with volatile or frequent price changes. This data will be used to more rapidly identify inflation rebate liabilities and to update benchmark prices used in calculating Medicaid drug coverage reimbursement to pharmacies. For Medicaid beneficiaries, more accurate AMP data means the preferred drug list formulary pricing and supplemental rebate negotiations will be based on more current market prices. Pharmacies participating in Medicaid should monitor any reimbursement rate changes issued by their state Medicaid agency in 2027. See full Medicaid guide.