Explanation of the Medicaid Drug Rebate Program

The Medicaid drug rebate program was formed by the Omnibus Budget Reconciliation Act of 1990. This program requires that drug manufactures have an agreement with the Secretary of the Department of Health and Human Services so that states can receive federal funding for drugs given to Medicaid patients.


At this time, more than 550 pharmaceutical companies participate in the Medicaid drug rebate program. This number is constantly on the rise. Additionally, Washington, DC, and every state except Arizona covers drugs under the program.

Rebate Numbers

There are two categories of drugs in the Medicaid drug rebate program: non-innovator drugs and innovator drugs.

The rebate for innovator drugs is the bigger of these two figures: 1) the difference between the Average Manufacturer Price (AMP) and the lowest price per unit or 2) 15.1 percent of the AMP.

For non-innovator drugs, the rebate is 11 percent of the AMP per unit.

The Medicaid drug rebate program is managed by the Centers for Medicare and Medicaid Services' Center for Medicaid and State Operations (CMSO). Although the Medicaid drug rebate program was amended by the Veterans Health Care Act of 1992, it has stayed relatively the same since inception. The current pricing agreement has been in place since 1996.