652
Opinion of the Court
California Medicaid program only after prior authorization). These programs were not specifically governed by any federal law or regulations, but rather were made part of the State Medicaid plans and approved by the Secretary because they aided in controlling Medicaid costs.7
Congress effectively ratified the Secretary's practice of approving state plans containing prior authorization requirements when it created its rebate program in an amendment contained in the Omnibus Budget Reconciliation Act of 1990 (OBRA 1990).8 The new program had two basic parts. First, it imposed a general requirement that, in order to qualify for Medicaid payments, drug companies must enter into agreements either with the Secretary or, if authorized by the Secretary, with individual States, to provide rebates on their Medicaid sales of outpatient prescription drugs.9 The rebate on a "single source drug" or an "innovator multiple source drug" is the difference between the manufacturer's average price and its "best price," or 15.1% of the average manufacturer price, whichever is greater. 42 U. S. C. §§ 1396r-8(c)(1), (2). The rebate for other drugs is 11.1% of the average manufacturer price. See § 1396r-8(c)(3).
Second, once a drug manufacturer enters into a rebate agreement, the law requires the State to provide coverage for that drug under its plan unless the State complies with one of the exclusion or restriction provisions in the Medicaid Act. See § 1396r-8(d). For example, a State may exclude
7 "Before 1990, States had routinely required prior authorization for prescription or dispensing of drugs in order to control Medicaid costs . . . . In enacting the drug rebate provisions of Section 1396r-8 in 1990, Congress did not intend to upset that practice." Brief in Opposition for United States as Amicus Curiae 14-15.
8 104 Stat. 1388-143.
9 The statute authorizes payment for some drugs not covered by rebate agreements if a State determines that their availability is essential to the health of beneficiaries, if they have been given a special rating by the Federal Food and Drug Administration, and if a doctor has obtained prior authorization for their use. See 42 U. S. C. § 1396r-8(a)(3).
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