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Could GATS impact state Medicaid rebates?

As part of its WTO obligations, the United States has committed to follow GATS rules for distribution services, which includes the retail and wholesale distribution of pharmaceuticals. The commitment requires government measures to be consistent with GATS rules on Market Access and Domestic Regulation, among others.

The Market Access rule prohibits governments from setting certain quantitative limits on distributors. PhRMA has stated that state Medicaid Preferred Drug List programs based on price and effectiveness are "market access barriers of concern [that] include pricing and reimbursement practices that fail to recognize the value of patented innovative medicines."

The GATS rule on Domestic Regulation requires government measures to be objective and transparent. In its case against Florida, PhRMA argued (in effect) that the state used qualification criteria that were not transparent in the federal Medicaid law, and therefore, HHS did not have discretion to approve state programs. Another country could make a similar argument under GATS. The GATS version of PhRMA’s argument might be that HHS is not using transparent qualification criteria when it approves expanded rebate programs, if those criteria appear nowhere in federal law or agency rules.

The WTO is also negotiating a Domestic Regulation rule that would require government measures to be objective and “not more burdensome than necessary to ensure the quality of the service.” States usually balance a range of criteria to decide which drugs to include on the PDL. These criteria usually include cost, safety, efficacy and consumer preferences. Such a balancing test is inherently subjective and possibly not consistent with the GATS mandate to be objective. PhRMA has already argued that criteria that emphasize cost over efficacy are burdensome. GATS also parallels PhRMA’s argument where the rule on Domestic Regulation requires state measures to be no more burdensome than necessary to ensure the quality of the service. By this argument, the requirement that distributors must provide the rebate to non-Medicaid consumers would be considered burdensome.

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