Drug Repackagers Could Be Liable For Medicaid Rebates Due To Pending FDA Rule

Rule could shift some rebates from drug manufacturers to repackagers, due to change in products’ national drug code.

Drug wholesalers that repackage drugs may face responsibilities for paying Medicaid drug rebates, should an FDA rule on relabeling be made final.

Olsson, Frank and Weeda attorney Arthur Tsien highlighted that possibility during a presentation to the National Association of Chain Drug Stores' recent Pharmacy & Technology conference in Boston.

"The margins [for repackagers] are too low," Tsien said. "If you have to pay for the rebate, whatever financial benefit there was to the pharmacy and the wholesaler disappears."

The FDA proposed rule, issued in August 2006, contains a number of provisions related to drug establishment registration and listing, and collection and maintenance of national drug codes. It would require companies that repackage drugs into smaller quantities for provision to retail pharmacies to place a new repackager NDC on the product.

The proposed rule states: "The appropriate NDC number is the NDC number belonging to the manufacturer, repacker, or relabeler, that corresponds to the particular drug; a repacker or relableler would not be permitted to place an NDC number that corresponds to an original manufacturer on a repackaged or relabeled drug."

The connection to Medicaid arises from a requirement that manufacturers pay rebates to Medicaid programs based on a percentage of their "best prices" to private customers; the rebates are tracked and assessed by each product's NDC.

The Health Care Distribution Management Association, the trade group for drug wholesalers, opposes the FDA rule.

Regarding the Medicaid effect specifically, HDMA explains that the rebate is linked to "the NDC number on the package - if the manufacturer's NDC number is used, the manufacturer pays the rebate; if the repackager's NDC number is used, the repackager pays the rebate." Thus, the FDA rule has the indirect effect of shifting the rebate burden from manufacturer to repackager.

HDMA said that analyses conducted for the association conclude that repackaging companies will not be able to absorb rebates given the industry's slim margins, although it has not reported the dollar impact of the shift, nor number of NDCs that would change,

Tony Pera, president of Columbus, Ohio-based American Home Packaging, a subsidiary of wholesaler AmeriSource Bergen, said in an interview that "Medicaid rebates can be three percent to five percent of the overall cost of the drug when factoring in the percentage of Medicaid patients and dollar amount of rebates associated with those patients." He added that potential expenses could "eat up anything resembling a profit."

Pera explained that repackaging is "a play between the bulk [purchase of a drug] and the hundreds or unit-of-use containers. Because of our operations and distribution we are able to exploit price differential. If we had to be responsible for Medicaid rebates it would erase it all."

However, the impact would not be felt by all distributors, but only those who actually repackage products into smaller containers.

H.D. Smith CEO Dale Smith explained that his company, for example, has a "direct-from-manufacturer"-only purchasing policy. Many "distributors and wholesalers would be unaffected by the proposed rule, since the NDC would be from the repackager - who is not necessarily the distributor delivering the bottle to the pharmacy."

According to HDMA, wholesalers that engage in retail service repackaging do so safely and effectively and offer additional package size options that increase inventory efficiencies and eliminate waste. It noted as well that a repackager must register with FDA as a manufacturer, comply with current Good Manufacturing Practices and be licensed as a distributor under state laws.

As an alternative to FDA's proposal, HDMA recommends that repackagers might add a unique ID code to product labels or an FDA-assigned facility code. These options would not disrupt current business practices but still meet FDA's objective of identifying the repackager and repackaged product, it says.

- Anthony Vecchione ([email protected])